Mortgage Blog

This week was packed full of economic news which has sent our mortgage markets off to a whole new set of volatility. To start the week off we saw consumer confidence slide to it’s 40 yr low – well duh! You and I have known this to be true for months and I have been saying all along the prior numbers were no way accurate but I guess they finally got it right for a change.

The best news we have seen in a long time is that new home sales saw an increase of about 464,000 new homes sold. This is mostly due in part of the smoking hot deals out there and builders trying to dump their inventories to create some liquidity on their part. This honestly in a misleading indicator knowing what is really happening in our market because these smoking deals actually drive down the values in neighborhoods.

The FEDs decided to lower the Fed Funds rate by .50 basis points this week which will eventually trickle down to Prime but as you know from my prior announcements and education that this does NOT have a direct correlation to mortgage backed securities. It actually has the opposite affect to mortgage rates. A Fed movement downward is construed as an inflationary fighting move which mortgage bonds hate. So, yes we moved up in rates this week and hopefully you told you clients from my last report to lock in then.

The GDP (gross domestic product) which is what determines if we are in a recession or not showed a decrease of .3%. There needs to be 2 consecutive quarters of negative GDP growth to be officially in a recession and here we are! I have been saying this for 6 months our economy is in a recession but the proof is finally in the pudding!

For now, again I am recommending to Lock in those interest rates today as the volatility continues and the bond market is actually reacting opposite to what it should. As an example the bonds should have rallied big time on the consumer confidence numbers this week but actually fell due to the Feds anticipation of the announced rate reduction.

Tip for the week. If any of your clients need help doing loan modifications there are a ton of unscrupulous companies popping up daily offering outrageous fees to the consumer. Most of these companies originate out of California and haven’t we’ve seen enough or learned from California’s mistakes in the past? Call me instead, because I have a much better solution that I have spent weeks preparing and will provide a much higher/honest service for homeowners who want to save their homes!

Randy Reed

303.524.9191

This week brought on more pullout from investors in both the stock market and bonds as both financial segments loss ground this week. As previously mentioned from my last report, the departure from the normal see-saw trading between stocks into bonds, were money flowing out of stocks would find its way into bonds and vice versa, is occurring because securities must be liquidated to raise capital. Because investors are trying to offset margin calls, all securities are being cashed in. This is slightly different from what we saw 2 weeks ago were foreign investors pulled money out to raise cash; we are seeing the same thing happen in our own homeland. There is now the fear from individual investors, were people are just giving up and cashing in just to get out of the market!

The brightest news out there were existing home sales were up to their highest levels in the last 13 months! And oil prices are down to $64 per barrel due in part by the weakening global economy and the rally in the greenback.

Technically, bond prices have moved below the 25 day moving averages, so I am recommending to Lock for those short term transactions. Otherwise, I do believe that the economic data will eventually move our interest rates lower over time – because the economy isn’t going strong we should see lower rates into the future.

If you have any questions, please feel free to call me.

Randy Reed

303.524.9191

As much as I don’t like saying this, it is a blood bath out there. The stock market looses 2,000 points this week while mortgage back securities have lost about 1.7 bps which equates to .25% higher in mortgage rates! This even comes AFTER the Feds joined European banks to lower short-term rates on a global basis by a ½ pt. The intent of the Feds in this unprecedented move was to combat the fear of inflationary pressures in the US because typically when the Feds lower short-term rates it is an inflationary and Bonds hate inflationary pressures and they thought doing it with European Banks would eliminate that concern. The other reason was to make it cheaper for institutions to borrow money for their daily credit needs AND for the Global Economies to create some liquidity. The problem we are seeing today is that because banks are not lending to one another, it doesn’t really matter how cheap in may be for an institution to borrower money if they can get any money from a bank because that bank isn’t able to borrow money themselves. This vicious cycle continues and is growing like a weed!!!

As far as our mortgage bonds are concerned, here is my personal theory on what is happening. Under normal conditions and we are by far out of anything being “normal” right now, typically when the stock market crashes investors will put money into bonds as a safe haven. But because foreign investors, who probably make up at least 40% of our economy (some people say it is upwards close to 60%) don’t believe in our credit markets and have publically said that the 700 Billion relief money isn’t enough to make a difference, are pulling out completely in our market. They (foreign investors) need cash to survive because they haven’t been able to borrower money from their banks for about 1 ½ months now and are just selling everything to be as liquid as possible just to survive. This is why I think our bond market has also tanked along with our stock market because there is no other “traceable” indication as to where the money is going!

So, were do we go from here? It is a day-to-day thing quite frankly. On Monday, of this week, I was able to take advantage of mortgage improvements and lock in all my customers – thank goodness. Today, if you have a short term lock situation, you should just lock what you can. The damage has been done and it could get worse before it gets better for those clients who are closing soon.

There are only a few things we can control in our world and I am so sick and tired of all the bad news/trends that I have come to the conclusion we can only control those things we do on a daily basis. So, get out there and produce! Develop stronger relationships in every facet of your business. Get back to the very basics of our business and do what our mentors did a long time ago – become the ambassador of our community in Real Estate!

Randy Reed