Predictions ahead of the Interest Rate Drop this Wednesday!

You’ll want to look at the MBS (mortgage backed securities) chart below that illustrates the wild ride we are on. The last 5 bars are Monday-Friday of the past week, with green being favorable to MBS and rates and red being unfavorable. Monday is the big green bar followed by another tiny green bar and then 3 red days that brought MBS back down near where they started. The steep slide in the stock market due to recession fears and the bear market is hurting the mortgage secondary market right now.

Normally, as the stock market turns worse, investment dollars flee to quality - bonds and mortgage-backed (MBS) in particular. But as of late, with the severe stock market drops, investors have had to liquidate positions to cover margin calls, cover depositor withdrawals and maintain cash position. This has put real pressure on MBS. That being the case - rates are still pretty darn good in the long view of things.

This week will be eventful. The FOMC (Fed Open Market Committee) meets Tuesday and Wednesday, reporting at 11:15 am our time Weds. The futures market has already baked in a further 0.50% (50 basis points or 50 bps) drop in the Fed Funds rate with rumors of a possible 75 bp drop.

Normally this would cause fear of inflation and drive long term mortgage rates the opposite direction, but I’m not thinking that will be the case this time. There may be a small initial negative impact, but it should turn slightly favorable with a couple of days. All economic indicators for the past 6 weeks have been down so significantly that this global recession is truly paired up with DEflationary indicators.

Mortgage rates would be even lower on this deflation cycle if there were a normal level of investor demand available. So we are watching the supply and demand of mortgage-backed securities. Look for news on Wednesday of a fairly significant Fed action.

Rates are great, Signet has plenty of lenders for conforming, agency jumbo and even jumbo loan options! We are here to make dreams come true and deals go through. Give me a call with questions and let’s make it a great week! - Dave