Maple Grove, MN

For the fifth time in a year, rate shoppers learned an important lesson this week: When mortgage rates plummet unexpectedly, they often recover just as fast.

Wednesday, the Federal Reserve's newest $750 billion mortgage market pledge helped to push conforming mortgage rates near their lowest levels since WWII. 

24 hours later, however, those rates were expired.

After considering the long-term implications of the Federal Reserve -- literally -- printing new money to service the recession, markets grew fearful that the Fed's interventions will eventually lead to inflation.  Inflation, of course, is the enemy of mortgage rates.

So, if you're looking for the explanation of why rates rose as suddenly Thursday as they fell the day prior, this is it.  And, in hindsight, rate shoppers might have seen it coming, if only because we've seen the exact pattern 4 other times:

• After the Fed's "surprise" rate cut in January 2008.
• After the Fannie Mae and Freddie Mac takeovers in September 2008.
• After the Fed announced its first $500 in support in November 2008.
• After the Fed zeroed out the Fed Funds Rate in December 2008.

Sharp drops in mortgage rate, it seems, are followed by immediate bounce-backs. 

Unfortunately, not every would-be refinancing homeowner saw the increase coming.  People that locked Wednesday captured the lowest rates in 6 decades.  Everyone else wishes they had.

From day-to-day, we don't know if mortgage rates will rise or fall. Nobody knows that.  But, we do know that mortgage rates tend to follow patterns and we've seen the above pattern 5 times now.

When mortgage rates plunge like they did Wednesday, they rarely low for long. When you find a rate you like, get in and get locked as soon as possible. By tomorrow, it's likely to be gone.

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There's a mixed message in February's Housing Starts data and it may be a good sign for home sellers in the near-term.

As reported by the government, new home construction rose by 22 percent last month.  The press is running with the headline number, calling it evidence of a market bottom.

A more thorough inspection, however, reveals a different story. 

The 22 percent figure applies to all homes built -- including apartment building units.  Isolating residential units, February's housing starts rose by just 1 percent.  Furthermore, the data's margin of error is 11 percent. 

Statistically, we can't know if residential housing starts really rose last month, or if it fell instead.  What we do know, though, is that the number of building permit requests rose.

Permits to build single-family homes were up 11 percent in February nationwide.

To home sellers, the rise in building permits may confirm that a housing market turnaround is already underway.  Builders wouldn't be putting new inventory on the market, after all, without being sure of their ability to sell it 9 months hence.

The headline figure of 22 percent is attractive, but it's not completely honest.  It's not the number of housing starts that matter so much right now as the number of housing permits.   A rise in permits signals that homebuilders -- a group that's lost a lot of money in the last 2 years -- think the worst of housing is already over.

(Image courtesy: The Wall Street Journal Online)

website: http://www.homeloansmidwest.com/

youtube channel: http://www.youtube.com/midwesthomeloans

blog: http://www.homeloansmidwestblog.com/

Today, the Fed exceeded all expectations when they announced that they would expand their purchasing program of Mortgage-Backed Securities. In addition to the $500 billion MBS purchase program which began in January, the Fed will purchase an ADDITIONAL $750 billion, bringing the total to $1.25 TRILLION!! The Fed will also purchase $300 billion in long-term Treasuries (10-Year Notes) over the next six months.

The primary goal of these actions is to lower mortgage rates in an effort to stimulate the economy. If homeowners can lower the rate on their current mortgage by refinancing, the money saved every month would be available to invest, pay down debt, and most importantly, purchase goods and services. Also, those homeowners would be less likely to go into foreclosure with the lower payment. The lower rates would also make homes more affordable to purchase helping to stabilize housing values.

So what's the catch?? Well, as the Fed buys up Mortgage-Backed Securities, the yields paid on those products come down. In turn, the rates that the lenders offer to the consumer should come down, right? The problem is that in many cases the lenders don't have the staff to keep up with the demand for new loans. So, to slow things down, they keep rates higher and pocket the difference.

Remember when we heard the rumors of 4.5% several months ago? Did that ever happen? Not really, at least not for very long. We had a few days where a few clients got lucky, but as a whole, the rates did not stay there long. The lenders raised their rates to slow down the demand, and in addition, their increased margins helped to make up for all the losses they'd been taking due to foreclosures.

I strongly believe that a "Fannie Mae Streamline" loan, structured similar to the current FHA Streamline, would provide better overall help for homeowners. As long as you've been paying on-time and your new loan amount does not exceed your original loan amount, no appraisal, no income and no assets are required. We would simply give you a new Fannie Mae loan at current rates. The problem is not that rates are too high, the problem is that home values are too low for many homeowners to take advantage of the rates.

I would love your forward-thinking predictions on the GOOD, the BAD and the UGLY of our government's actions.

Ben Olson, Mortgages Unlimited, Maple Grove, MN 763-416-2620

The Federal Open Market Committee begins a scheduled, 2-day meeting today to discuss the country's monetary policy. As is custom, the groupwill issue a press release to the markets upon adjournment.

There are 8 scheduled FOMC get-togethers annually and the post-meeting press releases are among the most powerful market-moving events of the year.

It's not the Fed's actual policy changes that causes fortunes to be won or lost, though.

These changes can predicted and traded -- and, therefore, hedged -- on Wall Street using Fed Funds Rate Futures.  For example, Wall Street predicts with 97% certainty that the Federal Reserve will not make a policy change at this time.

As opposed to than policy change, it's the verbiage of the FOMC's press release that can really move markets.  This is because the press release is a clear-eyed look into what the Federal Reserve thinks of the United States economy -- its strengths, its weaknesses, and its threats.

After its January 2009 meeting, the FOMC's press release said:

• The economy has weakened further. Since that meeting, though, a number of high-profile economists, including Fed Chairman Ben Bernanke, have said the likelihood of economic recovery increased for late-2009. This is why tomorrow's FOMC press release is so important. It will contain clues about the Federal Reserve's next steps and current psyche.  Undoubtedly, it will make a significant impact on the mortgage markets.In general, when the Fed alludes to inflation and stronger growth, mortgage rates rise.  Talk of a recovering economy and rising oil prices in tomorrow's press release, therefore, would likely raise rates from their current low levels towards levels not seen for 6 months.In the end, it's what the Fed says that matters more than what the Fed does. The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent. Employment has declined steeply. A gradual recovery may come later in 2009.

website: http://www.homeloansmidwest.com/

youtube channel: http://www.youtube.com/midwesthomeloans

blog: http://www.homeloansmidwestblog.com/