Illinois Mortgage Rates and News

Not so long ago the mortgage market was a lot like Baskin Robins 31 Flavors Ice Cream - a flavor for every need or taste. You wanted Rocky Road or Lemon Custard? No problem. A 5 year fixed payment Jumbo option ARM or a 30 year fixed rate with interest only payments for the first 10 years? Those were on the menu, too. Now that the credit crunch has hit the mortgage market full force, the mortgage options have shrunk. Borrowers can still get their ice cream, but they better like Vanilla.

The mortgage market has been dysfunctional ever since the Sub Prime melt-down last summer. Price swings, both up and down, have been exaggerated. Mortgage options have disappeared and credit and appraisal guidelines have tightened. Some of the biggest mortgage lenders in the country have been on the ropes, unsure if they will stay in the business. Throughout all this turmoil, the core market for conventional loans has chugged along. Conventional loans are those loans eligible for sale to Fannie Mae or Freddie Mac, the two 600 pound gorillas who buy up most of the mortgages in the mortgage aftermarket. These two companies are backed by the U.S. Government, and though their loans are not insured by the government, it has always been assumed these loans are completely safe. Over the last week that assumption went out the window. Mortgage rates spiked upward last week when investors seemed to lose confidence in mortgage backed securities. Rates have recovered a good deal over the past few days, but confidence is still a big problem. This week the market for conventional adjustable rate mortgages has virtually dried up.

While the Fed has continued to cut short term rates over the last months, long term mortgage rates have moved higher. In times where there is a big spread between long term and short term rates, it usually makes sense to consider adjustable rate mortgages. Last week, before panic hit the market, the spread between a 30 year fixed rate and a 7-1 ARM (the rate is fixed for the first 7 years before it becomes an adjustable) was nearly a full percent. By the end of the week the rates were the same. This week because there is no liquidity in the market, ARM loans are not selling at all, which means that most of the big wholesale lenders are not even offering adjustable rate mortgages at any price.

I’m hoping that this is a temporary problem. Yesterday the Fed stepped in with a program to inject $200 billion dollars into the system for banks to borrow against, and they can use mortgages as collateral. This should help restore confidence. The mortgage bond market is on a tear today, which means investors are starting to look more kindly on mortgages, at least for today. But with the volatility in the market there is no guarantee that this trend will continue and we will get back to a normal market any time soon. If the Fed can continue to calm investor’s fears, and confidence improves, adjustable rate loans should find favor again and the rates should be much lower than where the fixed rate loans now are.

In the meantime, there are still some lenders (we have some regional and local banks who keep their loans for their own portfolios and don’t sell them in the mortgage aftermarket) who still have attractive rates on ARMs. So, if you are shopping for a loan now there are some options. But until the market gets straightened out, the options are fewer than before and the mortgage market has shrunk.

Illinois Mortgage Rates and News

Peter Thompson is illinois Mortgage Broker



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Tags: adjustable rate mortgages, ARMs, dysfunctional mortgage market

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