Thanks Scott,
Good to know!
Greg
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This week's treasury auctions were poorly received by US and international investors. Additionally, for the first time in decades, private issued bonds by institutional lenders like Warren Buffet are paying a lower rate of interest to their investors than are US Treasuries. These issues are causing US Treasury rates to rise. This causes mortgage interest rates to jump.
This from Todd Johnson, the President of Homeservicing Lending:
The stability we've had in bonds, mortgage-backed securities and similar fixed-income instruments have traded in a very narrow range for a long period of time. When we think about the Federal Reserve buying $10 to $25 billion dollars a week in mortgage related securities, as well as direct debt of Fannie and Freddie, the Fed's purchases combined were over $1.4 Trillion dollars as of a couple of weeks ago [which helped to keep rates artifically low over the last year]. We're only a week away from the Federal Reserve completing its Mortgage Backed Securities and debt acquisition subsidy [the tool which as kept rates so low].
From a U.S. deficit perspective, our country will issue over $2.4 Trillion this year [in bonds], $1.4 in new spending and the rest to refinance other U.S. debt that is coming due. This week, the U.S. Treasury was selling over $110 Billion in new issuance, and the way they do this is that they start the week with the short term paper and finish their sales by the end of the week with the longer end of the curve. Yesterday, the $42 Billion dollar sale of 5 year notes went quite poorly, and Tuesday's $44 Billion dollar sale of the 2 Year notes were weaker than expected as well. On Thursday, the U.S. Treasury will complete its sale of the week with a $32 Billion large block of 7 Year debt [which was also received very poorly today].
All this poor performance by Government debt means the Government will have to 'sweeten' the deal at the next treasury auction by paying higher interest rates to attract potential investors. This, in turn, causes mortgage rates to rise.
Additionally, the FHA has announced that as of April 5th, the cost of FHA loans, and price of the mortgage insurance associated with these loans will increase substantially.
This information, along with the elimination of the first time home-buyers credit which is currently set to expire at the end of April, means a more costly loan for our clients.
What can we do?
* As always, get your clients pre-approved with Homeservices Lending as early in the process as possible. These higher rates and fees are going to be a reality of our market and clients need to re-examine what they can afford. A rate increase of 0.500% on a $600,000 mortgage increases payments by about $250.00 a month
* Lets work as a team and let your clients know about the importance of locking in a rate as soon as possible once they have an accepted offer
* Talk to your clients who may be on the fence or trying to "time the bottom of the market". Waiting to buy may cause their mortgage costs to increase more than the savings they make on further declines on property values.
I realize this is a lot of information, please do not hesitate to call or email with your questions.
Scott L. Groves
Mortgage Consultant
Homeservices Lending
MAC M0923-011
$198,950
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