Rates

Well, after a week like last week, we knew that rates could continue to fall that rapidly.  This week we saw all good economic news, which ended today with the Monthly Unemployment Numbers.

Unemployment today came out at 7.8% down from 8.1%, and the US added 114,000 new jobs.  Also in the report, August and July's numbers were revised up by 46,000 and 40,000 respectively.

Jobs are key to the recovery because more people working the more people spending.

So you can see by the above chart of Mortgage Back Securites, that this week, we kind of hit a ceiling on rates and now we are bouncing off that ceiling.  This has caused rates, this week to remain pretty stable, with no major movement. like we saw in the previous weeks.

Green going up = Rates going down,  Red going down = Rates going up.

Pending any more major news today, rates should trade in a pretty narrow range and should see much movement.  Although lenders are going to keep rates artificially higher today, as Monday is a banking holiday, and rates will not trade again until Tuesday.  So over the weekend the EU has a chance to really mess items up.

The overall consensus is that if you have a loan closing in the next 7-10 days, go ahead and lock.  But anything longer, to float.  But remember floating is your risk.

Outlook for Rates

There has been quite a bit of chatter on just how low rates can go, obviously there will be a bottom, and nope "Zero" isn't the bottom.

Eventually rates will become so low that investors will not purchase bonds anymore because the return is so low.

Example: You buy an apple today for $1.00, and that apple weighs 1 pound.  And today you can also buy an orange for $1.00 but it only weighs 1/2 of a pound.  Then the apple is a better deal because it will fill you up more. (Apples = Mortgage Back Securities and Pounds = rate), Oranges = Stocks)

Now lets say the government steps in and modifies the apples, so now the apple weighs less, say 3/4 of a pound and it now costs $1.25.  Still better than an Orange, but not as filling.

Then the government steps in again, modifies the apple again, now it costs $1.50 and only weighs 1/2 of a pound.

Well, you are still hungry and need to eat (investors need to invest)  So you will change your diet to oranges, even though you may not like oranges, but you get 1/2 pound of oranges for $1.00.

Moral of the story, eventually rates will fall to a certain level and investors will not be willing to purchase them because the return on their money is less.

Mortgage Forgiveness Debt Act of 2007

Well it looks like, as of today, that Congress is not going to extend the Mortgage Forgiveness Act of 2007 (MFA2007).  This was the law that prevented people from being taxed on their Deficiency in a Short Sale or Foreclosures.

I.e.  Borrower owes $100,000 on a home, short sales it for $50,000, the remainder is the Deficiency of $50,000.00.  Previous to the MFA2007, this would be taxed, up to 35% (please consult a CPA). 

After the MFA2007, that income (yes it is income, you receive a 1099) was not taxable.

But the MFA2007 expires 12/31/2012.  So anyone closing a Short Sale or a Foreclosures after 12/31/2012 will be taxed on their deficiency.

Now I am not a licensed CPA, so please consult a CPA, but in speaking with a CPA, his words are "OUCH"