Marc's Mortgage Matter's

Did you hear about the two blondes who froze to death in a drive-in movie? They had gone to see, “Closed for the Winter.”

All of us could take a lesson from the weather. It pays no attention to criticism, right? Critics are still blasting the TSA for allowing an alleged Nigerian terrorist to board a plane headed to Detroit on Christmas day. Experts say screeners missed several suspicious behaviors, especially the fact that someone was willingly going to Detroit.

Why should anyone in mortgage banking care about the value of the dollar? Doesn’t a falling dollar only hurt foreign exporters, foreign holders of US securities (like the Chinese with over $1 trillion), or American tourists? Unfortunately, a falling dollar only benefits American exporters so far – it can hurt in the long run if manufacturing companies can reap rewards without improving products or productivity. And when the dollar rallies back, they will suffer. Interesting, toward the end of 2009, the value of the dollar was inversely related to stocks but in the past, the dollar and stocks usually moved together. (With the global financial crisis the dollar rallied as a safe haven for investors, and stocks plunged.) With regard to interest rates, a falling dollar (or any currency) usually leads to higher inflation and higher interest rates on loans of all types.

The “word for today” is “herding”. What is herding, and why should anyone in the financial arena and normal folks care about it? In conditions of uncertainty, humans, like lemmings and any other animal, herd together for protection. In unstable markets (bonds, stocks, whatever) this leads to trend-following: buy when others buy, sell when others sell. “The trend is your friend.” Fancy money managers do it constantly so their performance won’t diverge too much from the norm, or so that they can piggyback on the knowledge of their competitors’ research. So if a stock, or interest rates, starts to move in one direction, traders assume that there must be a good reason, and they don’t want to miss out. So everyone piles in, and at the end of the day commentators and capital markets folks are left trying to explain why rates went up or down a lot when there is no real reason. 

Here attached below is this weeks read on current mortgage interest rates. Its probably the closest to actual rates being locked/given during these last few days. Unlike so many other "reports and claims" from a horde of obnoxious sources stating interest rates rose to....drum roll....5.12 last week. Huh?, I'll take 150 of those sight unseen!  Those that want to know the real deal can look it up every Sunday in the Real Estate section of the New York Times. However, If you want to be in lala land or in denial stick to your favorite source of information, and please DON'T call me!

The fresh economic news which starts the year is, of course, reflective of the end of 2009. As we wander into 2010, perhaps the biggest factor is what the Fed decides to do with all its various support programs and how they will affect the functioning of markets. In that regard, we were a little surprised that the minutes from the mid-December Fed meeting revealed some dissent about how or when to wind down the program for purchasing Mortgage-Backed Securities (MBS). That MBS program is the key factor keeping conforming interest rates at near-record low levels, and is technically slated to expire in March (and that date having been already extended from a 12/31/09 termination).

While it's indisputable that the Fed's involvement has produced benefits, what is not as clear is whether or not the private market will be ready to absorb as much as $15 to $20 billion of new MBS per week. If not, too much supply amid too little demand will cause a spike in interest rates, and that will imperil the housing market recovery. There are two Fed meetings before the expiry comes: the first is in late January, and another is just two weeks before the deadline. Some announcement may or may not come this month, and if the Fed doesn't resolve the uncertainty, markets may start to become increasingly jittery as we roll into March. We'll see what happens before too long.

One report that is always reliable (if always revised) is the monthly employment report. While it was hoped that there would be perhaps no loss of jobs in December, another 85,000 folks disappeared from payrolls during the month. However, the November and October figures were revised, too, and while the net effect found little change for the two-month period in aggregate, the November number was upgraded to a gain of 4,000 for the months, the first such increase in two years. It's also worth noting that the job losses have improved markedly in recent months and we should expect to start to see mild improvements on a more regular basis before too long. However, if growth is too mild, we might still see slight job losses even as GDP growth remains positive.

As the economy slowly heals, there will be a little clarity from time to time about which direction we are headed, and plenty of fits and starts along the way. Interest rates have firmed from late-fall bottoms, but there's insufficient economic heat to suggest that they can push too much higher. In that regard, we do seem to be establishing a new range, with a higher "bottom" than the upper four-percent one we've seen at times. Better news will serve to firm rates, or keep them steady.

I was walking past the mental hospital the other day and all the patients were shouting, “13....13....13.”
The fence was too high to see over, but I saw a little gap in the planks. I looked through to see what was going on, and someone poked me in the eye with a stick!
Then they all started shouting, “14....14....14…”