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Weekly Rate Lock Advisory

This week brings us little economic data of any importance. There actually are only two reports scheduled for release that would fall under the moderately important or important categories. This leaves the bond market to be influenced by outside factors such as stock market movements.

The first of the two comes tomorrow morning with the release December' s Factory Orders data. It is similar to last week's Durable Goods Orders report except this one tracks new orders for both durable and non-durable goods. It normally is not considered to be of high importance to the markets, but since there is a lack of factual data scheduled this week, it may cause enough movement in bonds to affect mortgage rates tomorrow. Current forecasts are calling for an increase of 2.0%.

The only quarterly report being released of any importance is Wednesday's Productivity and Costs data for the 4th Quarter. Since a high level of productivity is thought to allow economic growth without inflationary concerns, this data can cause enough movement in the bond market to affect mortgage rates. If it varies greatly from analysts' forecasts of a 1.0% increase, we may see some movement in mortgage rates Wednesday.

Besides Thursday's weekly unemployment claims, the only other information that may lead to changes in mortgage rates are a few Trea sury auctions scheduled for this week. Included in this week's sales are 10 year Notes on Wednesday and the 30 year Bonds Thursday. It is typical to see a little weakness in bonds ahead of these sales as investors prepare for them. If the auctions are met with a strong demand from investors, particularly international traders, we should see bonds move higher during afternoon trading of the sale days. This should lead to afternoon improvement in mortgage rates.

Overall, I expect to see a fairly quiet week in the mortgage market. The economic data is of no significant importance and the Treasury auctions usually have no major impact on rates. We may see a little movement from day to day, but I would be surprised if we saw either a sizable rally or sell off in the bond market the next several days.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 2 0 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Weekly Rate Lock Advisory

Hot on the heels of its surprise inter-session rate cut of 75 basis points two weeks ago, the Federal Reserve cut key interest rates again, the fifth straight cut since September 2007. In its statement last week, the Fed said it had decided to cut the federal funds rate "in view of a weakening of the economic outlook and increasing downside risks to growth." In other words, economic data suggests the US is on the brink of recession, and the Fed is acting accordingly.

Who benefits from this cut?
If you have a loan that is directly tied to the Prime Rate, you will see an immediate benefit. Home equity lines of credit (HELOCs) and variable rate charge cards are the types of loans that will have an interest rate reduction on their next statement.

What does this mean for long-term rates?
Long-term mortgage rates, the lowest we've experienced in years, could actually increase after today's cut, based on historical performance and recent trends.

So if you're waiting for long-term rates to fall further, don't count on it. Your best chance to lock in the lowest rates since 2005 is now. Getting your application in process now will allow you to capture a great rate before it's too late.

What REALLY moves mortgage rates?
Fixed-rate mortgage rates aren't directly tied to Fed interest rate moves. Instead, they tend to follow in the direction of other long-term government bond yields, such as the 10-year Treasury, which historically moves in accordance with the economic outlook and in advance of Fed actions. The performance of Mortgage Backed Securities, issued by Fannie Mae and Freddie Mac, is what really determines long-term mortgage rates.

How does the economic stimulus package fit into the picture?
The economic stimulus package from Congress and the White House could be a double-edged sword for borrowers. Combined with recent Fed actions, the package could create inflation and bring about higher long-term interest rates.

On the positive side, conforming loan limits are likely to be raised from the current $417,000 to upwards of $625,000. This means great potential savings for purchase and refinance candidates who live in 20 high-cost areas across the country.

What should you do next?
If you're unsure how the rate-cut or the proposed legislation affects your mortgage, don't worry, you're not alone. There's no one-size-fits-all answer. Give us a call right away. We'll review your mortgage and see what, if anything, can or should be done to make the most of your individual financial goals and needs.