One of the things I have been visiting about with those interested is the strange rates phenomenon.
Our 30 year fixed mortgage rates have been in the low 4% range for several weeks now.
We have explained this by an overwhelming desire of investors to seek a safe parking spot for their money with a relatively decent return on their investment.
LIQUIDITY in the world with the massive exodus from the Stock Market, the troubles in Europe and other factors including the ever expanding wealth in China and India as manufacturing powers NEEDS to be placed somewhere. This ALL adds up to a DEMAND.
Mortgage Backed Securities are one such parking place. Remember that Mortgage Backed Securities are actually representing real estate (however indirectly.) They are securitized mortgages. Mortgages have been REALLY scrutinized over the last few years, so the quality of the mortgage paper is WAY UP compared to where it was. Better borrowers = more likely to pay their mortgage = more attractive and likely to actually pay out mortgage backed securities.
Remember too that the Feds have extended a $200 BILLION dollar "backstop" line of credit to Fannie and Freddie at the end of 2008 to "guarantee" investors that they will be paid on the Mortgage Backed Security holdings they have.
All this adds up to the attractiveness of the Mortgage Backed Security to meet the above DEMAND.
SO:
We had a similar situation about 12 years ago. World liquidity was reaching a point where there was so much demand for this type of parking space that we could hardly print enough paper to meet it. THEN: we needed more mortgages to be able to securitize and sell as Mortgage Backed Securities.
SO: the agencies simply loosened up the guidelines. Loose guidelines and marketing home ownership to ALL was one way to create more paper to sell...and meet the world's demand for this type of investment. Rates actually WOULD have been similar to where they are NOW...back then. Supply vs. Demand...and we simply created more supply.
NOW:
We are in a similar place where investors want OUT of the stock market and worldwide need a place to park money. BUT: we can not simply loosen guidelines and sell more mortgages. I have been waiting for it, but this morning I read an article suggesting that "home loans with stated income and stated asset applications and a loan-to-value of less than 75% are actually performing relatively VERY well." We will likely see more of this type of thing to test the public response before the agencies ultimately roll out the product line again.
ALL things depend on consistency in the trend we are on though. There is NOTHING propping everything up as it is now except for blindness and speculation at this point. None of the traditional indicators are seeming to get a bite or give us a decent prediction of things to come. WE are in an interesting predicament.
Cheers,
Chad
Chad Schauers
Montana Mortgage Lender, Bozeman, Montana
Personal Cell: 406 799 8613
Personal Email: metchad@gmail.com
