Welcome to Illinois Mortgage Rates and News week in review for the week ending November 21st, my take on the week’s financial news and how it affected Illinois mortgage rates.

The markets are still in turmoil and fear is still the ruling emotion. The two big stories on the financial markets this week were the anticipated bailout of the big 3 automakers, and the news that mega-bank Citigroup is now on the ropes. The auto makers have been on a downward slide for years, and their collective decisions to base their fortunes on SUVs took a hit when gas prices soared. They have made a lot of bad decisions over the years, but it wasn’t the gas prices that pushed them over the edge, it was the credit crunch. Car buyers have disappeared, and those who are in the market are having a harder time coming up with financing. With no sales the auto makers are rapidly running out of cash, and the only viable lender is the government. GM, Chrysler and Ford don’t get a lot of sympathy. They are big, bloated organizations who have been out of touch with the market for years. Because of labor and pension and health care obligations, their cost of doing business is higher than their competitors. The Bush administration doesn’t appear to want to step in and some critics say they should be allowed to fail. But if they did fail, the ripple effect could mean the loss of well over a million jobs, and a devastated economy in the upper Midwest especially. It is probably cheaper to keep them going then to deal with the mess if they don’t make it. The auto makers are hoping that the government will swoop in to rescue them. Chances are that a structured bailout will be arranged, conditional on their dealing with some of the problems that have festered over the years. An auto maker bailout makes sense in the short term, the question is if it would be enough to get them off of life support and make them stronger in the long run.

Citi has a different problem. Citi stock was in the 40s just a few months ago, now it is under $5 (this is junk stock territory). The crisis here started early in the week with the announcement that Secretary Paulson was moving on from his idea of using the TARP money to buy bad mortgages, and would hold out on spending the rest of the money allocated (about $325 billion) for the next regime to take over. One commentator described it as having the quarterback walk out of the game in the third quarter when no one was available to take his place. This was especially bad news for Citigroup which has a lot of toxic mortgage debt on their books, and was looking forward to pawning it off on the government. The stock went into free fall, and even a big infusion of cash from a Saudi investor wasn’t enough to pull it out. The stock recovered a little by the end of the day Friday, but the concensus is that it may not be able to make it on its own, will require big infusions of government money and there are fewer and fewer big banks that can take it on if it did fail.

New unemployment claims came in at 542,000, a huge and ugly number. The expectation is that unemployment will continue to grow and we will be in a downturn at least through mid 2009. One good thing that has come out of this is that prices for oil and other commodities are coming down. A few months back when Oil prices were in the $140 range, experts were claiming that it would surely go to $200 per barrel. It went below $50 this week. I’m not sure what the upshot of that is, besides knowing that many experts don’t have a clue and you can’t follow a trend line to infinity because at some point it will change. But I filled up my car for under $30 this week and did a double take when I looked at the pump. Some stations here in the Chicago area are now showing gas prices under $2 per gallon. This is good news in that gas prices effect nearly everything in our economy, and with gas coming down prices in general will follow. It also brings another fear, though. The Fed brought out the D word this week, Deflation, as being the biggest risk to our economy going forward. To battle deflation the Fed can cut interest rates, but the Fed funds rate is a t1.0% now, so there is not much farther they can go. The other solution is to pump more money into the economy. They’ve been doing this with out much effect so far. We are probably going to have to wait until Obama takes over in January before we see more of this. The current administration is done with leading and ready to move on.

In mortgage related news, Fannie Mae and Freddie Mac declared a moratorium on foreclosures between November 26^th and January 9. This will help distressed homeowners over the holiday season, and the hope is that it will give some an opportunity to do a work out on their loans so they can keep their homes. Mortgage rates were flat most of this week, then turning volatile again on Friday, swinging up, then down, then finishing with a slight improvement for the week. All the news continues to point toward lower mortgage rates. If the mortgage market was functional, rates would be considerably lower than they are now. But the markets have been wacky all year, so the old rules don’t apply. It does seem that mortgage bonds have been consolidating, and when that happens it usually means we are near a breakout in one direction or another. I think the odds are that rates are about to improve, but this isn’t a safe market to make bets on. If the rates do drop, be ready to make your move, whether buying or refinancing, because there is no guarantee that rates would stay low. If you have a mortgage with a rate in the mid 6s, chances are a refinance would help you out now.

Here is what Illinois Home 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 (Illinois mortgage company) 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%      6.058% APR

15 year fixed rate      5.50%       5.664% APR

5-1 A.R.M.                 5.375%      5.537% APR

For Jumbo loans over $417,000

30 year fixed rate  * 6.50%      6.615% APR *

Special pricing requires 25% down payment or equity

7-1 A.R.M.                 6.00%       6.173% APR

FHA LOANS - 3% down payment

With 1 point origination fee – 60 day lock

30 year fixed rate      5.75%      6.267% APR

With no origination fee – 60 day lock

30 year fixed rate      6.00%      6.295% APR

FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.

These are just a few of the mortgage programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

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