Welcome to Illinois Mortgage Rates and News week in review for the week ending May 29nd, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

If you paid attention to the financial news last week, the biggest story was of GM and how it was on the way to bankruptcy next week. But the bigger story this week was under reported in the main stream press, the bond market revolt which sent mortgage rates sharply higher on Wednesday. I wrote last week that volatility is returning to the mortgage rate market. Over the last several months the mortgage backed securities market has taken its cue from the Fed, and with heavy Fed buying of mortgage backed bonds and other debt, mortgage rates have dropped to historic lows and have stayed within a predictable range for the last several months. Last week we felt rumblings, little tremors in the financial markets. This week we had the earthquake. The government has been spending money at an unprecedented pace to fund the stimulus programs, 2 wars, and bail outs everywhere you look. Without government spending our economy would be frozen because the banks still aren’t lending and everyone else is afraid to spend. But in order to fund the spending, the government is taking on huge debt and printing more money, and both of which could lead to bigger problems over time, and this led to a breakdown in the bond market which fed into a panic selling route where the market lost 260 basis points in one day and over 400 for the week and mortgage rates rose over a ½ a point on Wednesday. The market recovered a good part of the losses by the end of the week, but we are now in new territory and it will take some time to see what happens next.

There are 2 schools of thought about where we are and what our real problems are. One, as the Fed and Obama administration have put forth, is that we need to do whatever is needed to get the economy back on track, and though inflation may be a problem down the road, we have bigger issues near term. The idea here is that with the implosion of the banking system, a housing market that is still searching for bottom and high and growing unemployment, inflation has no place to take root, but the threat of deflation is still a possibility. If we have a huge hole, you need to fill it up before you start worrying about how high a hill you will build. One of the worries is that foreign investors like China, which holds over a trillion dollars of our debt, will stop buying our debt. This may happen, but it won’t be any time soon. China’s fate is closely intertwined with ours. We are their biggest market for exports, which has been the basis of their growth, and if they stopped buying our debt that would destroy the value of the debt they now hold. They will complain, but it is in their interest to get us up and moving as quickly as possible. Treasury Secretary Geitner is making a trip their this week, and this is sure to be one of the big items on the agenda.

The other school of thought is based on looking back at what has happened in the past when government spending was too high compared to our GNP (gross national product). This idea says that there is no free lunch, and if we continue to spend at such a high rate, we will have to raise taxes on everyone, bringing down the economy, and inflation will spike to a point which will make life miserable. This school of thought says if we don’t reign in spending now we will be in for a long period of slow growth and inflation, much worse than what we are dealing with now. When the economy was tanking, this wasn’t as much of a fear, but now with the economy showing some signs of stabilizing, fear is setting in.

No one knows what will happen in the future or which school of thought will win out. The Fed still has ¾ of a trillion dollars set aside to buy back mortgage backed securities to keep rates low. But if no one believes they can do what they need to, then it really won’t matter. At the same time, a lot of the inflation view is based on the thought that the economy has turned a corner and we are starting to head up in a fast recovery. If we see some bad economic reports and the green shoots turn out to be weeds, we could be right back in the range we were in before. The bond market (and mortgage rates) had a big recovery near the end of the week, so it’s clear that the market was over sold. In order for the economy to recover rates have to stay low. The question now is if this is a warning of what could come before we head back to the same pattern we were in before, or if this is the new reality, and now matter how much the government wants to keep rates low, the market will demand a higher premium. I don’t think we are out of the woods yet, and there is reason to think we aren’t finished with the low rates yet. But if you are planning on buying a new home, or refinancing your current mortgage, this might be a wake up call. Take advantage of the opportunities when you can. They won’t last forever.

In other news, the highly anticipated plan for how the $8,000 first home buyers tax credit was released. After a big buildup with the expectation that this would allow the credit to be used up front for the buyer’s down payment … phbbbbt … bupkis … nothing. Or at least nothing that is going to bring anyone new into the market. The new rules (details again to follow) will let first time home buyers take a loan against the tax credit to use as additional down payment after they have already made their minimum 3.5% FHA down payment, or they can use it to pay for closing costs. But this is a solution without a problem. The home buyers looking to grab on to the first rung of the home ownership ladder aren’t worried about making extra down payment (which won’t save a lot off their monthly payment) and if they are short funds for closing costs they can negotiate for the seller to pay a credit toward their closing costs. Without a big need for what this new program will offer, I doubt that we will see the lenders and other parties make the effort to put together the infrastructure needed to make this work. Someone is going to have to make the 2^nd mortgages secured against the tax credits, but with low demand, I don’t see a big move toward getting this together soon. If you are other wise well qualified and were hoping to become a first time home buyer this year, your best option is to call all your friendly relatives and see if you can get a gift for the down payment. Once you have bought and closed on your home you will be able to amend your tax return and take the tax credit this year, so you will get the credit back as a check a few weeks after you close.

Mortgage rates moved around a lot, but ended about the same as where they ended last week. 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              5.25%     5.349% APR

15 Year fixed Rate             4.75%      4.836% APR

5-1 A.R.M.                         4.375%       4.473% APR

 

For Jumbo loans over $417,000

30 Year Fixed Rate*          5.875%       6.057%

*Special pricing based on 75% LTV for purchase, 680 and above FICO single family homes up to $750,000 loan amount – pre-payment penalty applies.

7-1 A.R.M.                        5.375%       5.453% 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              5.00%      5.479% APR

With no origination fee – 45 day lock

30 year fixed rate              5.25%      5.463% 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%      5.478%  

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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