New Stimulus Package, Why Are Rates Increasing?

January 29th, 2009 For help with your mortgage visit www.2ModMyLoan.com

The US Post office is requesting that they no longer delivery mail on Saturday's as a way to save money. Makes sense to me - think of the money they could save if they made us all pick it up at the post office every day. With all of these lay-offs (Kodak is shedding 3,000 jobs), closings (Starbucks is shutting down another 300 outlets, leaving ex-mortgage bankers with no choice but to drive farther for a latte), showing that the economy is bad, why aren't mortgage and Treasury rates lower? Simple - the government needs to issue more debt to pay for a rescue. And in order for all of this supply to attract investors, yields have moved higher. Remember Econ 101.

Citing data from LPS Applied Analytics, a mortgage-data research firm, the Wall Street Journal reports that about 6.9% of prime, jumbo loans were at least 90 days delinquent in December, up from 2.6% in the year earlier period. Delinquencies of non-jumbo prime loans that qualify for government backing increased to 2.1% from 0.8%. Defaults on jumbo mortgages tend to result in outsized losses for lenders given that expensive homes are much more difficult to sell when the real-estate market sours. According to the article, three lenders accounted for nearly half of all jumbo loans made in the first nine months of 2008. The top two originators, Chase and WaMu, made more than 25% of all jumbo loans. In addition, BofA and Wells Fargo each accounted for 11% of the jumbo market.

Speaking of Wells Fargo, their Wholesale Lending group will require two new requirements for FHA and VA transactions: a minimum loan score of 620 is required, regardless of any automated underwriting system (AUS) decision, and a payment history for FHA streamline refinances and VA interest rate reduction refi loans. (No 30-day or greater mortgage lates in the most recent 12 months will be allowed for FHA Streamline Refinances and VA IRRRLs.)

Rates moved higher yesterday, in spite of the House passing the Stimulus Bill (with no Republican support, for those of you playing along at home, as they believe the bill includes too much spending and not enough tax cuts). Things were relatively stable, even with the stock market rallying on financial stocks' improvement, until the Fed's announcement. As expected, they are leaving overnight rates alone. But bond market investors were disappointed that the policy statement did not include an immediate intent to begin purchasing government bonds - they have an "inclination" to do so.

Today does not look rosy either. We have a $30 billion 5-year note auction by the Treasury, with the market still swallowing $40 billion of 2-yr notes. We already saw Jobless Claims rise 3,000 last week, up to 588,000, with the moving average increasing to 542,500 from 518,250 the week before. Durable Good orders fell for the 5th month in a row, and dropped 2.6% in December following a November revised decline of 3.7%. Later we can look forward to New Home Sales, expected down slightly. In spite of being "over sold", prices have moved down more, and rates higher, mostly due to the auction ahead of us. As I type this the 10-yr is at 2.70% and 30-yr mortgage prices are about .250 worse in price.