Welcome to Illinois Mortgage Rates and News week in review for the week ending April 18th, my take on the week’s financial news and how it affected Illinois mortgage rates.

In last weeks review I said that the calm in the mortgage backed securities market was unlikely to last, and that I

expected rates to make a move out of their range soon. On that count I was 100% correct. I did however think that the odds were that the move would be toward lower interest rates. I blew it on that call. Mortgage bonds tanked this week sending mortgage interest rates higher – though there was an impressive recovery on Friday afternoon which brought rates back from the brink. Last week the consensus was that the economy was softening and we had a ways to go before the credit crunch played out. This week traders are feeling more optimistic on the economy and think that the worst is over. The view now is that we are finished with Fed rate cuts and our biggest worry is inflation. Not a lot has changed over the week to justify such a big swing in perception. There were some better than expected earnings reports this week, and a few economic reports came in better than projections. But most of the news was in line with earlier reports of a soft economy. In fact, most of the news that came out this week showed that there may still be some bumps in the road ahead of us. Credit is still tight and consumers are feeling pressured. The slowdown appears to be spreading beyond our borders and becoming global. We may be at the tail end of the credit crunch – at least from the perspective of the big financial players – but it is going to take a while before this trickles down to the American consumer.

The most anticipated reports this week were the release of CPI and PPI, two measures of inflation. PPI, the producer price index, came in a little hotter than expected, but this was due to high fuel costs. This isn’t always the best measure of inflation because in a soft economy producers aren’t always able to push their higher costs on to consumers, and often take the hit in their profit margins. CPI, the consumer price index, came in right as expected, with a moderate increase, not in the danger zone. Unemployment claims inched higher to 322,000. The levels of unemployment claims are at the level seen in past recessions. The Philadelphia Fed index came in much worse than expected and at the lowest level since 2001, another sign of a slowdown, and the Fed Beige book showed that economic conditions have “weakened” and residential construction is “anemic”.

All this data would normally cause mortgage bonds to rally pushing mortgage rates lower. So what happened that made traders so optimistic? A couple of things. First, some big corporations – IBM, Google and Caterpillar – came in with higher than expected earnings – mostly due to a rise in sales over seas, partly helped by a weak dollar. And then some financial powerhouses – Citigroup and Merrill Lynch – came in with huge losses, but less than expected. Citigroup announced the write down of another $12 Billion from bad credit loans, a quarterly loss of $5.1 Billion, and plans to layoff 9,000 employees. I figured out a long time ago that traders (stock, bond, whatever) live in Bizarro world, so this doesn’t completely surprise me. The thinking is that these losses, while HUGE, are less than what they could have been, so this means we are now near the bottom and we are ready to get back to the way things used to be. It is true that corporations like Citi can make a ton of money quickly. Their cost of borrowing has gone down, but they haven’t lowered the rates that consumers pay for most loans. The question here is whether or not rising defaults on credit cards and car loans will cut into these profits down the road.

Though rates have risen, I still think we are going to see lower mortgage rates before this is all over. Traders are fickle creatures. They jump on a trend and ride it as far as they can, but they are quick to jump off and ride in the other direction at the slightest change in direction. Little changes make big moves, especially now in a time when volatility is so high. Friday afternoon was a good example of this. Mortgage bonds started the day off with a loss of 66 basis points (a huge loss). It looked like bonds were on track to test the worst levels we’ve seen in months, when they switched direction and rallied higher. At the end of the day mortgage bonds closed up 31 basis points, up over 100 points from their low. What news came out to justify this switch? Not a thing. After the fact commentators came up with justifications for the switch, but the truth is it is all about market sentiment and this can switch on a dime. Traders and big investors are thinking that the worst is over, and they can see a time when the housing crunch is over and the economy is back on track. They can see it clearly, but we may have some valleys we have to cross before we get there. When we hit these valleys – or if there is even a hint that these valleys are out there – stocks will tank money will rush into mortgage bonds and rates will improve.

There is still a wide spread between T-bills and mortgage bonds, the market for Jumbo loans is still broken and ARMs are still priced out of the market. Investors still lack confidence in mortgage bonds, and mortgage wholesale lenders are holding back on their pricing to make up some of their losses. All this being said, there is still mortgage money available and this is a great time to buy a home. If you are thinking about buying a home in the Chicago area, or anywhere, and are ready to pre-qualify for a mortgage, let me know what I can do to help.

So where are we with mortgage rates? Rates are sharply higher than last week, but still historically low. 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, or to get pre-approved for a mortgage, 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    5.875%   6.064% APR

15 year fixed rate    5.50%     5.675% APR

5-1 A.R.M.               5.50%     5.675% APR      

7-1 A.R.M.               5.75%     5.839% APR

For Jumbo loans over $417,000

30 year fixed rate*  6.75%     6.869% APR – Requires 20% down payment

(*We have one lender at 6.125% for a Jumbo fixed rate – if you meet their guidelines – 75% loan to value, tighter ratios.)

7-1 A.R.M.*             5.875%      6.142% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS

With 1 point origination fee – 60 day lock

30 year fixed rate  5.75%       6.047% APR

With no origination fee –        60 day lock

30 year fixed rate  6.00%       6.246%

These are just a sampling of the mortgage rates available. Which option is best for you depends on your own specific goals and needs. The big question for next week is if the rally on Friday will carry though, or if it is a temporary blip in a worsening market. Stay tuned to find out more.

Illinois Mortgage Rates and News

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