Welcome to Illinois Mortgage Rates and News week in review for the week ending February 27th 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

The economic news released this week was consistently grim. The nation’s GDP decreased by 6.2%, housing prices fell to new lows and the Government is now the major stockholder for banking giant Citigroup. But bad news has become the norm now. Market data is consistently coming in worse than expected (and the expectations are low) and when revisions come in they are usually lower still. So bad news doesn’t have the same impact on the markets that it used to because a good deal of gloom is already baked into the expectations. That said, markets crave certainty. They want to be able to take data from today and extrapolate it into the future in the form of prices and values. We are certain that the economy is a mess now, but uncertain of what can be done about it and whether any of the governments big plans are going to do anything to help make things right.

In normal times all this news would be bad for stocks (true enough, stocks are at a 12 year low and hovering over a key level of support) and good for bonds, which should drive mortgage rates lower. This is the flight to quality concept, where in times of uncertainty money flows out of the stock market and into the safer havens of treasury bonds and mortgage backed securities. US Government bonds are the gold standard of investments, but traditionally mortgages have gone along for the ride, too. Things are a little more complicated now.

An enormous amount of money needs to be raised to pay for the stimulus plan and the new budget. The government can raise money several different ways. It owns the Treasury which has all the printing presses, so it has the ability to print up whatever currency is needed. But they tried that back in the late 60s and it led to raging inflation which took over a decade to tame. It can sell assets, but there aren’t many buyers for anything right now, and they would have to sell a lot in order to raise the money that is now needed. I have a feeling that selling Alaska back to the Russians wouldn’t be politically popular. That leaves debt, and over the past few weeks the Treasury has been auctioning off a boat load of securities to raise cash. This debt has to be paid back by future generations, and this has been the big concern for treasuries, and by extension mortgage bonds. Rates would be much lower if the market had a better conception of how all this debt is going to be paid back down the road.

In mortgage land, everyone is waiting for March 4^th. This is the date that the details of the Obama mortgage plan are to be released. This plan’s stated goal is to provide a basis to help some slightly underwater home owners, encourage banks to modify loans rather than foreclose, and to make mortgages more affordable, leading to more refinancing which should help stabilize the housing markets. The response to the outline of the plan was positive, but, as the saying goes, the devil is in the details. Again, we get back to uncertainty. If the markets think that the plan is likely to be a success, they will rush in to buy more lower coupon mortgage bonds, insuring lower rates. If it looks like the plan will be a dud, look for mortgage bonds to sell off and rates to head back up again. There is one thing which could bring mortgages rates down for many home owners without a big effort on the part of the government. Fannie Mae and Freddie Mac, the two biggest purchasers of mortgages and the organizations that set the rules that all lenders follow, are now effectively owned by the government. As the housing market has cycled lower they have issued a series of loan level price adjustments (LLPAs), which are price hits for factors which affect the loan risk. These price adjustments make sense in a way, riskier loans should cost more than safer loans. But the concept has been taken so far that many otherwise qualified borrowers are now priced out of the market. It also means that one hand of the government is raising the cost of lending while the other hand is trying to lower rates. Eliminating some of these LLPAs could be a way to lower mortgage rates quickly and easily.

Mortgage rates are slightly higher this week than last. We are still going back and forth in a range, but over the last 2 there have been several times where rates dropped, sometimes only for a short time, into the low point of the range. One strategy many clients are doing now is to start the loan process floating, and to lock in for the most benefit when the rates dip. There is no guaranty that we will dip again, but this strategy has been working well so far. The Fed bought about another $25 billion in mortgage backed securities this week for a total of almost $160 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.

Here is what Illinois Home mortgage rates look like today for an A+ (740 Fico or above), full doc single family home 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          5.25%     5.366% APR

15 Year fixed Rate         4.875%   4.934% 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

30 Year Fixed Rate*       5.875%       6.098% APR

Special Pricing – Available up to $750,000 loan amount, 75% LTV Purchase/70% LTV Refinance – some restrictions apply.

(For smaller 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         5.25%      6.023% APR

With no origination fee – 45 day lock

30 year fixed rate         5.625%     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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