Yesterday mortgage backed securities basically moved sideways and to sum up the day in one word, boring.   Even though Treasuries sold off, mbs managed to basically stay unchanged the entire day.  So far this morning, mbs are higher which should lead lenders to price about .125 to .25 better in discount.  This should keep par 30 year fixed rate mortgages anywhere from 4.875 to 5.125%. 

We did get several pieces of economic data today.  First we got the 2^nd revision to 4^th quarter Gross Domestic Product(GDP).  Economists where expected the number to be revised from a -3.8% to -5.4%; however, the number came in much lower at -6.2%.  This is positive for mbs but on the news we didn’t get any improvement.  A big reason for this is that this report is backwards looking; it is telling us how our economy grew or in this case contracted last quarter.  Investors put more weight on forward looking reports.  Next we got the release of Chicago PMI which is a measure of the strength of the manufacturing segment of our economy in the Chicago area.  Economists where expecting a reading of 33.0; however the number came in slightly better at 34.2.  Readings under 50 is a sign of a contracting economy and readings above 50 signal an expanding economy.  Lastly, we got the release of consumer sentiment.  Since consumer spending accounts for more than 2/3rds of our economy, investors always want to know how the consumer is feeling.  If the consumer is feeling good about our current economic condition and their own personal finances, they are more likely to spend money.  For the economy to grow, we need the consumer spending money.  Economists where expecting a reading of 56.0; however the actual reading came in slightly better at 56.3 which is only 5 points away from the all time low reading set in May of 1980 at 51.7.  Since the release of all economic data, mbs have held steady with modest improvement on the day. 

I would like to take a few moments to discuss an important topic to anyone seeking a mortgage.  Just recently, Fannie Mae and Freddie Mac came out with new loan level price adjustments(LLPA).  It used to be that whether your credit score was a 650, 700, or 800, everyone got the same rate and costs.  Due to the recent mortgage crisis, Fannie and Freddie have now started to charge higher fees to people with credit scores under 740.  You can visit this link for a forum post that outlines all the new fees and discussion on this topic, http://www.mortgagenewsdaily.com/forums/t/31646.aspx.  I would like to give you an example, lets assume that your loan to value is 80% and the loan amount is $200,000.  If your credit score is 740 or above; you qualify for the best rate with no extra Fannie or Freddie fees.  If your credit score is 720 to 739, you will now have to pay a .25 fee(equates to $500), if your score is 700 -719, you now pay .75($1500), if your score is 680 - 699 you pay 1.5%($3000), 660 – 679 you pay 2.5%($5000), and 620 – 659 you pay $6000.  So, for a consumer that has a 695 credit score if they want the same rate as the person with a 740 score not only do that have to pay the same costs associated with the loan, you now have to pay an extra $3000 in delivery fees!!!!!   If you can recall, late last year Fannie Mae and Freddie Mac where placed in conservatorship by the US government so basically the government is in charge.  The government including all politicians want mortgage rates to drop so people can refinance to lower rates which in turn lowers their mortgage payment which than gives the consumer more money to spend to get the economy going.  So, on the one hand, they want lower rates but then on the other hand new charges are added which will prevent many people from being able to refinance.  This is a classic example of it sounds good in the media but in reality very few consumers are qualifying for the best rates.  Now, if your score is 695 but you don’t want to pay the additional $3000 in costs, you can elect to take a higher interest rate which will increase your rate by about 1% from the best rates available.   Unless these fees are reduced, it is becoming more and more difficult for mortgage rates to move into the middle to low 4% range since fewer and fewer people qualify for the best terms.  If we can get an announcement that these fees are going to be reduced or eliminated, we should see mortgage rates drop and a refinance boom will be upon us.  So, please do not get upset with your loan officer when you see these additional fees.  Please visit the above link for more discussion and we would love to hear from you on this topic.  We will provide links so you can contact your Representatives in Congress and demand that these fees go away.

While writing the morning post, mbs have sold off and are back to the same level we closed at yesterday.  It appears that a quick sell off of treasuries is the cause.  The 10 yr treasury this morning opened at a yield of 2.99 then moved lower to 2.91 but in a matter of less than 30 minutes they sold off and moved to a high yield of 3.03.  In a sell off, the price moves lower which increases the yield and vice versa.  Unless treasuries can turn around, it will be difficult for mbs to improve on the day.  Please understand, mortgage rates follow the buying and selling of mortgage backed securities and not the buying and selling of treasuries; however, birds of a feather flock together so much of the time mbs and treasuries do move in the same direction.   I speak of treasuries quite often since the only way to get access to live mbs pricing is to pay for a service through one of many pay sites; however, anyone can access treasury prices for free through many sites or news channels such as Bloomberg.com or Bloomberg TV.