Welcome to this week’s Illinois Mortgage Rates and News week in review, my take on the week’s financial news and how it affected Illinois mortgage rates.

I think it is safe to say that the mortgage system is officially broken. Mortgage rates are determined by the buying and selling of mortgage backed securities (MBSs), a type of bond backed by home mortgages. They trade on an open market and, like stock prices, go up and down by supply and demand. Mortgage bonds have always been looked at as one of the safest investments around. They paid slightly higher yields than Treasury notes, which are backed by the Federal Government, but the biggest risk with mortgage bonds was that interest rates would go down and the loans would pay off early, lowering the over all yield. Over the last year, ever since the sub prime mess hit the fan, there have been signs that the mortgage system was out of whack. Whole classes of mortgages (sub prime and Alt A) have disappeared and the Jumbo mortgage market still hasn’t recovered. But conventional loans, those loans bought up by Fannie Mae and Freddie Mac, were considered as safe as safe can be. Now it seems that investors are getting scared off even from these loans, and this could be a big problem going forward.

The volatility in this market is absolutely crazy. There is a real disconnect between the economic fundamentals and mortgage interest rates. This week was one of the worst weeks I’ve seen in the mortgage backed securities market, and the effect on mortgage rates. Mortgage bonds plunged and rates moved up sharply over the course of the week. Part of this was due to financial problems with 2 lenders, Carlyle Capital and Thornburg Mortgage. They were forced to liquidate mortgages to raise funds, and buyers were scarce. On Thursday, when we saw the worst of it, we had 3 re-prices, all for the worse, over the course of the day.

One of the more puzzling things going on now is the widening spread between mortgage bonds and Treasury bonds, which are issued by the US government and considered nearly risk free. Over the course of the week Treasury rates barely changed, but mortgage rates jumped by about half a point. The spread between Treasuries and mortgages is well over 2 points now, much higher than normal. Investors are demanding a higher return from mortgage bonds, and this means higher mortgage rates.

Though mortgage rates did take a hit this week, fixed rates were looking much better by the end of Friday when the markets closed. But some programs this week got hit harder. Over the last several months I’ve encouraged borrowers to look at adjustable rate mortgages. That meant a borrower would save a tremendous amount on their payments while still having the security of knowing that their payment was fixed for the first 5 years. Last week the spread between a 30 year fixed and a 5 year Arm was almost a full point. This week the spread has nearly disappeared. Jumbo mortgages got hit hard this week, too. The big question is whether this is the new reality in mortgage pricing, or if this was just an uncommonly bad week and we will start to return to normal in the coming weeks.

The week was a disaster for mortgage rates, but they did improve some on Friday. The widely watched employment numbers came in much lower than expected. The expectation was that the economy would create 25,000 new jobs, instead it lost 63,000 jobs. The numbers for January and February were revised downward too, so the overall job picture is bleak. As I’ve said before, bad news for the economy is good news for mortgage rates, and the mortgage rates had a great day today, erasing much of the loss from yesterday, though they are still much higher for the week.

The other big news for the week was the release of the new FHA lending limits. Here in the Chicago area, the new lending limit for a single family home is now $410,000. This is great news for home buyers here in the Chicago area. The increase in loan limits will mean that many people who couldn’t buy a house before, will now be able to through the common sense underwriting of FHA.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, give me a call or contact me and I’ll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    6.25%       6.478% APR

15 year fixed rate    5.625%     5. 778% APR

5-1 A.R.M.               6.00%       6.239% APR       

7-1 A.R.M.               6.125%     6.287% APR

For Jumbo loans over $417,000

30 year fixed rate*  7.125%     7.262% APR

(*We have one lender at 6.125% for a Jumbo fixed rate – if you meet their guidelines.)

7-1 A.R.M.              6.125%        6.275% APR

FHA LOANS up to $270,200 with 1 point origination fee

30 year fixed rate  6.00%        6.249% APR

These are just a sampling of the mortgage rates available. We have special programs for first time home buyers and all the bond programs including the City of Chicago Bond program and the State of Illinois Bond program which offer no down payment and below market pricing.

Next week the Consumer Price Index will be released, and the focus will be on inflation again. There are a number of other reports scheduled for release, but the bigger issue may be about investor confidence, and whether they are willing to come back into the market. I expect the week will be volatile again. As usual.

Illinois Mortgage Rates and News.

Tags: current mortgage rates in Chicago, Illinois mortgage rates, mortgage rate weekly update

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