The Daily Rate Lock Advisory

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W Bridgewater, Massachusetts

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The Daily Mortgage Interest Rate Lock Advisory – May 14, 2009

Posted at The Daily Rate Lock Advisory by Lew Corcoran

May. 14, 2009

Tagged with: massachusetts mortgage interest rates, mortgage interest rate lock advisory, mortgage interest rates, mortgage market watch

What the Markets Are Doing Today:

The bond market, mortgage backed securities and the stock markets all opened in positive territory this morning following a better than expected economic report.

The Dow opened up 23 points from yesterday’s close
NASDAQ opened up 10 points from yesterday’s close
The 10 Year Treasury Bond opened up 5/32 from yesterday’s close
FNMA 30 Year 4.0% coupon opened up 2/32 from yesterday’s close

The price of the FNMA 30-Year 4.0 coupon closed up 3/32 (white line) from its opening yesterday, and is currently up 2/32 (blue line). Remember, on MBSs, as the price goes down, the yield goes up - and so do mortgage interest rates. Conversely, as the price goes up, the yield goes down - and mortgage interest rates go down with it. I expect that mortgage rates will again be the same today as they were yesterday.

Economic Reports Being Released Today:

Producer Price Index (PPI) Report for April – The PPI helps us measure inflationary pressures at the producer level of the economy. The overall index rose 0.3%, slightly more than the 0.1% rise analysts were forecasting, and follows a 1.2% decline in March. The core data, which excludes the more volatile food and energy prices, rose 0.1% as expected. However, the PPI is down 3.7% year over year - the largest drop since 1950. This report indicates that inflation is still being held in check at the producer level.
Jobless Claims - New claims for unemployment rose to 639,000 last week – much more than the 609,000 new claims analysts were predicting. 605,000 new claims were filed last week. Continuing claims for unemployment continue to rise and jumped again to another record for the 15^th week in a row to 6.56 million. This indicates that it's taking more time for the jobless to find work. With more people unemployed, the threat of wage based inflation is subdued. Employers do not have to pay higher wages to attract new employees during high unemployment times as people will be happy just to have a job. However, this data is not considered to be of high importance to the bond or the mortgage backed securities markets.
Fed’s MBS Purchase Program – The results of this week’s purchases of mortgage backed securities (MBSs) by the Feds will be released in the afternoon. As of last Thursday, the Feds have purchased over $429 billion in MBSs. The Feds plan on purchasing up to $1.25 trillion in MBSs through December 31st.

Important News of the Day:

More than 342,000 foreclosure notices were filed in April, a record for the 2^nd month in a row, as banks step up their efforts to seize homes from borrowers who are behind on their payments. Meanwhile, only 55,000 homeowners have received a loan modification to avoid foreclosure. According to RealtyTrac, foreclosure filings jumped 32 percent from a year earlier. Nicolas Retsinas, director of housing studies at HarvardUniversity, said, “What you’re seeing is the inevitable result of severe job losses. Until we stem the job losses, we can expect to see continuing foreclosures.”

Chrysler today announced plans to close 789 out of 3188 dealerships. Meanwhile, Fritz Henderson, the CEO of GM, stated that GM will probably file for bankruptcy protection on June 1st, and that it intends to close 50% of its dealerships.

The remainder of this week will be very busy with the remaining economic reports scheduled for release. Look for more details on next week's economic data releases and events on my Weekly Mortgage Market Watch.

What Happening With Mortgage Rates Today:

Moderate Volatility. Overall, it’s been a pretty active week for mortgage rates. Look for the stock markets to continue to have a major influence on bond trading. There were several noticeable changes in rates this week, and would not be surprised to see multiple intra-day revisions as well. Accordingly, I would strongly recommend maintaining contact with your mortgage professional over the next several days if you’re still floating an interest rate.

There’s still continued downward pressure on MBS prices (which means higher yields and mortgage rates). The supply of bonds and T-bills on the market continues to weigh heavily on the market. The government expects to issue between $2.7 trillion and $4.2 trillion in bonds over the next two years to pay for the massive debt obligations. That in and of itself may give rise to the concerns for inflation.

No one knows how long rates will stay down this time or if they’ll go any lower. In addition, the spring and summer home buying season is upon us. Mortgage rates historically climb this time of year before peaking in July or August. If you haven’t locked in a rate yet, then you may want to consider doing so. Floating is making less sense now as the ever increasing massive government debt as well as the spring and summer home buying season could soon drive mortgage rates up even more. So, if you like the rate that you are being offered today, then there’s nothing wrong with locking in.

My Interest Rate Lock Advice for Today:

If I were considering financing/refinancing a home, I would...

Float if my closing was taking place within 7 days
Float if my closing was taking place within 8 and 30 days
Float if my closing was taking place between 31 and 60 days
Float if my closing was taking place over 60 days from now

This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of any or all other borrowers. See today’s mortgage rates at www.LewCorcoran.com/RateSheet.

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