Welcome to Illinois Mortgage Rates and News week in review for the week ending May 8th, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

Conventional wisdom is crossing the tipping point and the consensus is that the economy is past the danger point and we have hit the bottom. Much of conventional wisdom is now a step ahead of that and figuring if we are at the bottom now, a quick recovery is on the way. Two big things happened this week which gave weight to that opinion, the results of the stress tests on the 19^th biggest banks were released, and the unemployment numbers came in better than expected. As always, the news was a little more nuanced than the headlines showed, but optimism is creeping in.

The stress test results came out this week, and the good news was that everyone passed. The bad news was that half of the banks need more capital, either through sales to private investors or through more government financing (TARP money). The idea behind the stress test was to see what would happen and if the banks would still be operational if the economy got even worse. Like a cardiac stress test where they put you on a treadmill and kick up the pace until you are at the point of exhaustion and your heart is pounding, this stress test was supposed to put the banks under a worst case scenario. Only it now appears that these were closer to open book tests than a real final exam. The banks negotiated terms with the Treasury Department on how the test would be conducted, and over how much capital they would need in order to pass the test. So the results might not be quite as good as hoped for. In order for the economy to move higher the big banks need to get back to their primary role of lending money. Right now the banks are showing profits by borrowing at 0% interest and lending at much higher rates. But they aren’t taking any risks and only making the safest of loans. They may be able to get back to normal while feasting on fat margins, but until they start opening their lending windows wider the economy will continue to limp along.

The other big news was the unemployment report released on Friday. The results showed 539,000 jobs lost in April, much better than the 600,000 that was forecast, and considerably better than the last several months where losses were in the high 600,000 range each month. In fact, this was the best job report over the last 6 months. But the only way you could say this was a good report is by comparing it to prior months. Grading on a curve this looks like an A, but by the numbers it is still a failing grade. The best thing you can say about this is that the rate of job loss is slowing down. Then again, maybe not. Last month’s report was adjusted down, and this report is looking better because 60,000 new jobs were temporary workers hired by the government for the census next year. The economy has lost about 5.7 million jobs over the last year, so any sign of slowing job losses is good news.

The economy may be due for a positive bump. Companies have been aggressively cutting jobs and inventories down to the bone. Consumers have largely been doing without anything they don’t really need. But at some point things wear out, or pent up demand wins out over frugality and people will start buying things again. When that happens because companies are operating so lean, we may see a quick surge of growth as new orders come in, and have to be filled at the factory level since no one has any inventory anymore. With all the money being pumped into the economy over the last months we are sure to see some positive momentum, but we won’t know whether this is a blip or a trend until after the fact.

So what does all this mean for the direction of mortgage interest rates? Mortgage rates move mostly based on activity in the mortgage backed securities markets, but they tend to follow the lead of Treasury bills, debt guaranteed by the US government, which has always been considered the gold standard of safety. Treasuries have been getting killed over the last few weeks. This is partly a result of the optimistic mood in the markets (optimism means money flows out of bonds and into stocks) and partly because the government is borrowing so much money (through new Treasury auctions) and more supply means inflation is lurking somewhere over the horizon. Treasury yields have spiked higher over this time, but mortgage rates haven’t been hit nearly as bad. The big reason for this is that the Fed is holding up the mortgage market with a promise to buy $1.25 trillion in mortgages, of which they have already bought over $400 billion. They still have a tremendous amount of purchasing power, and so far, they have kept rates much lower than they would other wise be. But have we reached the end of the line earlier than expected? If the markets are expecting a fast recovery, and inflation, they’ll look past the Fed’s buying period, and mortgage rates will rise. This is possible, but most experts aren’t predicting a fast recovery. It is more likely that we will bump along the bottom, and as confidence returns there will be gradual growth. The markets are anxious for this to be over, but with high unemployment and consumers who are more prone to save what they have than go on a new spending spree, the recovery may be slow. Markets seldom move in straight lines. Sentiment changes and there are always blips, both higher and lower. Rates may go higher for a time, but in my opinion, the only way we can have a sustainable recovery is through an improvement in the housing market and for that to happen mortgage rates have to stay low. The government wants low mortgage rates, and they are doing every thing they can to make this happen. They may not be successful, but I wouldn’t bet against them.

In the real estate market, purchases are suddenly hot. For the first time in months I am seeing more new purchases than new refinances. With low mortgage rates and low home prices this is a great time for anyone to buy. But it is an especially good time to buy if you are a first time home buyer (and most of the new buyers are). The first time home buyer credit means that qualified buyers get up to an $8,000 first time home buyers tax credit from the government and Uncle Sam is subsidizing your new home. Refinancing is still a great benefit and there are an awful lot of people who qualify for lower payments who haven’t made the move yet. The new DU Refi Plus program is continuing to roll out enhancements, so more people will be able to take advantage of this program, even if their home values have decreased.

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 and FHA rates 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              5.00%     5.159% APR

15 Year fixed Rate             4.75%     5.895% APR

5-1 A.R.M.                        4.25%        4.386% APR

For Jumbo loans over $417,000

30 Year Fixed Rate*          5.875%       6.057%

*Best rates are based on 70% LTV, 760 and above FICO single family homes.

7-1 A.R.M.                         5.25%       5.343% APR

(For smaller Jumbo loans another option is to break your loan into 2 parts – conventional to the limit and a HELOC or second mortgage for the rest.)

FHA LOANS – 3.5% down payment – FHA Maximum varies by County

With 1 point origination fee – 45 day lock

30 year fixed rate              4.75%      5.339% APR

With no origination fee – 45 day lock

30 year fixed rate              5.00%      5.523% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

VA Veterans Administration 0 Down Loans

With 1 point origination fee – 45 day lock

30 Year Fixed Rate           5.00%     5.178%  

Call for information on no-cost VA Streamlined Refinances

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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