Welcome to Illinois Mortgage Rates and News week in review for the week ending January 30th 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

This was another ugly week in the economy, but by now that is expected. There is news every day of companies announcing new rounds of layoffs. More people are now receiving unemployment benefits than at any time since they started keeping track back in 1967. The stock market ended January with a drop of over 8% – its worst January ever. The consumer confidence index came in at 37.7, a new low. The GDP report released this week showed the economy declining by 3.8% in the 4^th quarter last year, the worst showing in 25 years. This was better than expected, but if you count the build up in inventories, the real number is a 5.1% and this is subject to revision which will surely drive the number lower. The expectation is that this wave is intensifying and this next quarter will be much worse.

Bad news on the economy is good news for mortgage rates, so rates should be down again, right? Not quite. Both the treasury notes and mortgage backed securities markets got killed this week, sending mortgage rates higher. So the questions are, what caused the route in the market, and does this mean rates are moving up for good?

Here are some theories as to why rates jumped higher this week.

1. Foreign investors are no longer interested in buying our debt. New Treasury Secretary Geitner accused the Chinese of currency manipulation this week, and some say that this means the Chinese will no longer purchase our debt. This could be, but they were active participants in the short term Treasury auctions this week, and with as much trouble as we have with our economy, this is a global recession and there are few other places for them to put their money. They also have a vested interest in our long term success as we are the biggest buyer of their exports.

2. It is a result of the stimulus plan. The thought of the government spending billions, maybe trillions, of dollars that we don’t have is a scary concept and this means inflation is right around the next bend in the road. Inflation We may see inflation again, but we have to get past where we are now, first, and deflation seems a bigger concern than inflation. No one else is spending money now, and if the government doesn’t step in to fill the gap, the economy will continue to deteriorate.

3. The government is overextended. We have already spent too much and with more money needed to stabilize the banks and get the economy moving, the markets no longer have faith that the government can handle the amount of debt it is writing and think that rates will have to go up to attract new investors.

I have my own theory – Markets are irrational and unpredictable, at least in the short run. Furthermore, markets hate uncertainty, and we are now in a very uncertain period. Markets are naturally volatile and over the last year they have been even more extreme in their volatility. Mortgage rates are up sharply, but some experts believe that mortgage rates will drop back down, and there are 2 big reasons for this.

1. Rates have been higher than they would be normally because all the wholesale lenders were caught by surprise when the rates dropped, and they had to ramp up their support staff to get through the backlog of new loans. With more business than they could handle, they kept their margins high to control the volume. Two of the biggest wholesale lenders who have been out of the market for the last month, are now back in the market and pricing aggressively. This means they are fully ramped up and ready for more business.

2. The Fed has made it its goal to get mortgage rates down to stabilize the real estate market. The Fed bought $16.836 billion in mortgage backed securities this week, mostly at higher coupons than in previous weeks. As of Thursday they have purchased just over $69 billion in mortgage backed securities out of a goal of $500 billion by the beginning of July. Here is a link to the New York Fed which tracks the Fed’s mortgage bond purchases. This number is updated every Thursday.

No one has a crystal ball that will accurately tell them where rates will be, but if rate do drop, be prepared to lock into a rate that works for you. Too many people didn’t take advantage of the low rates figuring that they would drop even lower. If you can lock into a rate and payment that will save you money and has a short payback period, it makes sense to take it rather than waiting for an even better deal.

In other real estate news, one feature of the new stimulus plan as currently written will eliminate the need for the $7,5000 tax credit to be paid back. The way it is now, the tax credit is good for any first time home buyer who buys a new home by July and the credit would have to be paid back over the next 15 years, at $500 per year. The new version of the credit would take away the pay back provision and let buyers file an amendatory tax return so they could get the benefit this year.

Here is what Illinois Home mortgage rates look like today for an A+ (740 Fico or above), full doc purchase or rate/term refinance on a 45 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      5.50%    5.615% APR

15 Year fixed Rate     4.875%   4.942% APR

5-1 A.R.M.                    5.125%   5.263% APR

For Jumbo loans over $417,000

7-1 A.R.M.                   5.375%       5.598% APR

(For Jumbo loans consider breaking your loan into 2 parts – conventional to the limit and a HELOC for the rest.)

FHA LOANS – 3.5% down payment

With 1 point origination fee – 45 day lock

30 year fixed rate      5.50%      6.023% APR

With no origination fee – 60 day lock

30 year fixed rate      5.875%     6.245% APR

FHA APR reflects 3.5% 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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