Rates

Well it took one broad stroke from the Federal Reserve to bring rates crashing down. 

On Thursday, the Federal Reserve came out with a not nice outlook for the economy, indicating that with employment still not going anywhere, and most economic numbers stagnant, he need to do something.  Why...

Well because Congress and the President are NOT doing anything.

So the Federal Reserve, beginning today, will be purchasing $40,000,0000,0000, yep Billion in Mortgage Back securites.  Each month for the next foreseeable future.

So what does this mean.  Time for Class.

Mortgage are pooled into a huge portifolo, so lets say there is pool of mortgage worth about $1B, yes billion.

That pool is sold on the open market, just as stocks and bonds are.  So now is where capitalism kicks in.  The more people that WANT these mortgage, the higher the price goes up and the lower the Yield goes down.  And it is the Yield that affects rates.  The lower the yield, the lower rates drop.

So when the Fed indicates he is going to purchase $40B in Pools or Bonds, the price shoots up and the Yield drops, dramatically.

So the Fed is going to try and push rates down.  The last time he did this, it caused rates to drop by .25 to .375%. 

The Fed believe is he can spur the housing market, it will cause more hiring in the jobs market.  Thus get us out of this stagflation.

So now for the Chart:

The Chart above is is a 3 month chart of a Mortgage Back Security, call a Fannie Mae 3.0 coupon.  Green line going up, means that interest rates going down.  Red is BAD.

So you can see in beginning of August, rates started to go up because Europe was on Holiday.  But as they came back from Holiday, rates started to improve.  Then yesterday we had that HUGE jump in Green, where the Fed announced.

Today, we have some selling, but that is typical after just a huge jump the day before.

So, now the moral of the story.

With the Fed going to buy bonds for the foreseeable future, I wouldn't lock until I had to lock.  And as long as we can stay above that red resistance line, rates should continue to drop.

Lenders really didn't price in the full Fed Rate drop of yesterday, they are going to give the weekend to digest.  But next week we could see rates continue to slide.

FHA info

Congress has given FHA the blessing to increase their fees, AGAIN!  FHA has not announced when the new fees are going to go into affect, but I would probably guess November, that is when they changed there fees last year.

Expected:

Upfront Funding fee goes from 1.75% to 2.00%

Monthly MI going from 1.25% to 1.50+%

RD fees

And don't forget, RD on 10/1 fees go:

From 1.50% to 2.00% upfront

And from .30% to .40% monthly fees.

AND Kuna will no longer be eligible for RD.