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Remember when I talked about the
whipsaw effect, yesterday? Rates with no lender compensation to the broker,
called “par” rates in the industry *, are 5.875% now. That’s .375% higher than
the 5.5% I
reported yesterday.
Will mortgage rates come back down?
Maybe. They SHOULD since they are backed by the full faith and credit of the
US Treasury. They SHOULD start behaving like the 10-year treasury bond yield,
which is down .06% in yield today. They SHOULD be at the 5.5% mark….but
they’re not.
The mortgage default crisis spread
to the world’s largest insurance company, prompting yet another government
bailout. Mortgage bond traders are starting to think that the US Treasury is
going to have to start offering classes of debt, to deal with the crisis.
Stratification of debt, like the old Resolution
Trust Corporation bonds, will most likely take us back to where
mortgage-backed securities trade at a wide premium to Treasury debt.
This isn’t happening but mortgage bond traders are speculating that it
might. If it does, then the demand for a 30 year mortgage, loaned to
you, the American borrower, is not as high as a direct obligation of the US
government.
What we seek to discover is how IRRATIONAL this fear, conjecture, and
speculation is. While it doesn’t seem rational, it isn’t quite irrational at
these price levels. If the 10-year treasury bond stays under 3.5% yield, and
the mortgage bonds sell-off pushes mortgage rates up over 6.0%, then I think the
fear isirrational and will change my recommendation- I’m still suggesting that
you lock your mortgage rate at application.
* A par rate is where the originating mortgage broker does not receive
any yield
spread premium from the lender. Borrowers can negotiate a fee for the
mortgage broker to give you access to “par rates”, which are typically lower
than the “retail” rates banks offer.
Long Beach mortgage rates report is offered courtesy of Brian Brady. Contact Brian for more information about a home loan
Brian
J. Brady
World Wide Credit Corp
(858)
777-9751
PS- Please check out my
references on LinkedIn
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