Elizabeth Rose - Certified Mortgage Planning Spec - DFW, TX

"What goes up must come down, spinning wheel got to go round" (Blood, Sweat, and Tears)....and Bonds have done just that. Up, down, spinnin' round.

Since Nov 4^th, Bonds have improved by 1100 basis points. What does that mean to Joe the Plumber? It means that home loan rates have improved by over 2% and as previously mentioned we are seeing historic lows.

However, we've seen some pull back since the price high (interest rate low) of December 17^th's rally. This pull back is to be expected. Here is a look at the bond market over the past 3 months. The best price in history was available for just one day. You don't have to be an expert to see that we hit a price high (rate low), touched it, pulled back and have reversed course. In the past 4 trading days rates have worsened.

It seems that many people are sitting the sidelines waiting on more good news. While it is possible for rates to improve, it is no guarantee. Here is what we do know...the longer people sit the sidelines waiting for a better opportunity, the housing market will continue to struggle to get moving again. In addition, many may discover that while waiting for the best deal around instead they lost out.

The last few days in the Bond market has had rather large swings intra-day but overall has moved mostly sideways. Following the Fed's Policy statement Tuesday, the market rallied, then Wednesday after a wild 138 basis point swing closed down. Since then we've seen the price of the bond trade a little lower and sideways.

An interesting (and disappointing) discovery is lenders response to the market. Many lenders have seemed reluctant in passing on the savings. What does this mean? Traditionally when the price of the bond improves, those improvements are passed on to Main Street in direct correlation. Lately, this is not the case.

Despite lenders reluctance to share all the good tidings, rates are at historic lows. The first mortgage-backed security arose from the secondary mortgage market in 1970. In this short history we are in uncharted territory now seeing price high's like never before. Mortgage rates are hovering around the 4.875% mark.

These improvements were built on weak economic news and Fed-speak of buying Mortgage Bonds. The Fed has promised to buy "large quantities" of MBS originally committing to $600 Billion and have since upped the ante. To date, they've only purchased around $8 Billion. We could see some additional improvement over time should the Fed step up their purchasing. However, it is an unknown. The downside risk is far greater than the upside potential.

Don't miss this nice opportunity to save. The best price will never be realized until it is in the rear view mirror.

The FOMC lowered the Fed Funds rate to a range of 0 - .25%. This is the time first time they have given a range. They also stated they will purchase large quantities of agency debt and mortgage backed securities The dollar weaked against the Euro on the news. Bonds soar following the Policy Statement. The Fed will be using the balance sheet to support markets and economic activity. The decision was unanimous. Currently mortgage backed securities are up 103 on the day. This means 30 year fixed rates are currently improved.

The Federal Open Market Committee finishes up day 2 of their meeting at 2:15 ET today. While it is widely expected the Fed will cut the Fed Funds Rate by 0.5%, while some are forecasting a .75% reduction. It will be interesting to see what happens.

However, it won't be what the Fed does today that will be as important as what the Fed says. And the markets are listening closely. Whispers are swarming there will be some talk about "quantitative easing" and a shift in focus to non-traditional policies.

Investors will be looking for signals on whether the Fed will take other extraordinary actions to boost the economy such as injecting more cash. The Fed typically targets the price of money, but, with the price so low, it may shift focus to increasing the quantity of money through its balance sheet.

"If the Fed announces more stimuli, either directly into banks or buying debt from Fannie or Freddie, it could spur the market higher," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

With this money flowing into the banking sector, many economists are worried about inflation down the road. But other economists do not believe that will pose a significant threat. Inflation is the arch enemy of bonds.

If you are floating a mortgage rate today, it may make sense to lock prior to the Federal Open Market Committee's press release. Expect volatility beginning sometime after 2:00 P.M. ET today.

Today the Fed begins their 2-day meeting with the Fed Policy Statement set for release tomorrow at 2 ET. Almost everyone is expecting the Fed to cut its target for overnight interest rates (the Fed Funds Rate) from 1% to 0.5%, however almost no one thinks it will do much good. Why? Households and businesses aren't borrowing - not because of the interest rate environment but because of fear.

Some are saying this meeting could be an important milestone in the Fed's history. Over six years ago, Chairman Ben Bernanke laid out non-traditional methods that he now hopes to use to fight the credit squeeze and liquidity crunch. The question is...can he get the rest of the committee on board with this strategy? It is expected that the buzz of the policy statement tomorrow and in coming months will be "quantitative easing" which basically means the Fed is looking to flood the financial system with so much cash that some of it will have to be lent out. It is likely that the Fed would accomplish this by purchasing long term Treasuries and agency debt. This purchasing of agency debt could spur another rally for mortgage bonds, improving home loan rates. However, keep in mind we have many concerns that could move bonds one direction or another - the auto bailout and the Mark to Market decision being the two biggies.

This morning Mortgage Backed Securities continue to cling to the ceiling of resistance. And rates continue to sit around the 5% mark. Interest rates are incredibly volatile and fluctuations that used to take months are now occurring in just days or sometimes even hours. If you don't have an application in process, you could lose out.