MBS and Treasury Oversupply Trash the Mortgage Market

(Originally sent to subscribers on June 8th - Subscribe by emailing dave@signetmortgage.com)

Good Morning!

Mortgage Backed Securities (MBS) have had a miserable 2 weeks of sell off. A combination of inflation scare, over-abundance of available debt securities and improving stock market have taken MBS and the related yields and available market interest rates the wrong way. Take a look at the chart below at the long, and sometimes steep drop we have experienced in the price of MBS. As bond prices drop, yields/interest rates rise.

What happened to the steady rates in the 4’s? Through May 21^st, we had 3 straight months of steady rates. For the price of an origination fee we could get your conforming primary residence mortgage near 4.5% for 3 months. In fact, looking at the Freddie Mac Weekly Primary Mortgage Market Survey (click here) you can see that the market average was within 6/100ths of 4.80% for all of those 3 months, and this includes all lenders and borrowers, therefore higher than the better rates Signet Mortgage is able to provide you. The same Freddie Mac chart shows that as of last Thursday, the same number was already up at 5.29% and that was the weekly average. Look at the chart again for the most recent green bar. That was Wednesday and the cluster at approximately 100.00 was the week prior to that. See that Thursday and Friday following were steep drop offs. I fully expect this coming Freddie Mac weekly average (due out Thursday morning) to reflect a number above 5.4%.

So where are rates right now? Rates and lenders are all over the map. For the cost of an origination, we see our lenders offering 30 fixed conforming on primary residences at anywhere from 5.125 to 5.625% this morning. This range points out the importance of working with Signet Mortgage to get the best available rate. We’ll shop for you as favored lenders change seats regularly during these times.

The coming week has additional offerings of Treasury debt security offerings. The Fed and Treasury continue to try and balance their need for borrowing and attempting to keep the interest rates in check. For the past two weeks, this has been a losing battle. The Fed is buying $25-35 billion of MBS every week. So far they have bought just over $500 billion in this program. They intend to keep this up with a stated target of $1.25 trillion. But with the Stimulus Program and 2009 budget deficit spending, required Treasury spending is far-out-pacing the MBS purchases by 100s of billions each week. With all of that Treasury debt available, the competition for MBS is high and rates rise with it. For this week, the Fed reduced its plans for issuances with the bond market in turmoil, attempting to cool it off a bit. We’ll keep our eye on this progress.

During these times, more than ever, experience counts! We’re here for you. Please let us talk with you and your friends, family and clients. Call anytime and make it a great week! – Dave

PS –a quick personal note: Our 22 year old son David Sven got engaged to Miss Liberty Baker over the weekend. Hooray! She is a fantastic young lady and they and we are very happy. The wedding is just around the corner in August taking place near her hometown of Moses Lake, WA. Did I mention that we are excited?