Illinois Mortgage Rates Weekly Update
16th August 2008
Welcome to Illinois Mortgage Rates and News week in review for the week ending August 15th, my take on the week’s financial news and how it affected Illinois mortgage rates.
Over the last several weeks, mortgage rates have been going in a pattern, two steps forward – two steps back. Some weeks it is three steps forward and two 
steps back and other weeks it is exactly the reverse. In other words mortgage rates have been volatile with big daily moves either up or down, but over all they are in a tight pattern with mortgage rates hardly changing at all from week to week. We may be about to see a change as mortgage rates improve and break out of this dance. Then again, this could be a head fake to the outside before we return back to the range.
As has been the case over the last several months, there was a lot of contradictory information released this week. Early in the week the CPI (Consumer Price Index) came in with a red hot reading showing inflation at a 17 year high. The number was higher than expected, but it was expected to be high as a result of the high oil and commodity prices we’ve seen over the last months. This reading would have normally killed the mortgage bond market, but with oil prices coming down this was seen as a look in the rear view mirror and largely discounted. A couple of regional manufacturing indexes also came in with better than expected results. On the other side, the retail sales report looked weak, and even weaker when you factor inflation into that number. Unemployment numbers jumped to near 450,000, much worse than the 375,000 average we’ve seen over the first half of the year. The Michigan Consumer Confidence index also came in shaky at 61.7% just below the anticipated 62%, but the bigger news was that consumers are not as pessimistic about inflation in the future as they have been. Economists and market prognosticators are starting to think the same thing. Gary Stern, the Fed President of the Minneapolis region, announced in a speech that he expects higher unemployment and lower inflation as we go forward, another Fed member had the same sentiments earlier this week – a sharp change from what we’ve been hearing from other Fed governors recently, and another suggestion that the Fed won’t be raising rates any time soon.
The market is now starting to think that inflation may not be the biggest problem our economy faces after all. Why the switch? A couple of reasons. First, oil prices are coming down steadily. The price of a barrel of oil was as low as $111 on Friday and closed at $113. This is a big drop from the high of $147 a few weeks back, and even more amazing that it happened at the same time as an invasion by Russia into Georgia, an oil producing nation. The dollar is also strengthening steadily. As the dollar increases compared to other currencies, this should mean higher exports and lower mortgage rates. Maybe a bigger factor is that the rest of the world is starting to slow down along with the US. It used to be that the United States led the way economically for the rest of the world. Many economists recently have signed on to the theory that this is no longer the case, that with the rise of China and the European Union as economic powerhouses the rest of the world has decoupled from the U.S. and will continue to grow as we dip. It turns out 
that that is not the case. The economic downturn we have been seeing is now spreading world wide. Another suggestion that rates should be going down.
Then again, even as the macro outlook points to lower mortgage rates, consumers aren’t going to get the full benefit. Last week both Fannie Mae and Freddie Mac announced another round of extra fees and increased risk based pricing.
Mortgage rates improved this week and mortgage bonds moved above a level of technical resistance. There is another resistance level just above where mortgage bonds are now, but if bonds can move past that there is a lot of room for mortgage rates to drop. Here is what Illinois 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 6.375% 6.524% APR
15 year fixed rate 5.875% 6.014% APR
5-1 A.R.M. 5.75% 5.867% APR
7-1 A.R.M. 5.875% 5.989% APR
For Jumbo loans over $417,000
30 year fixed rate* 6.875% 6.634% APR
7-1 A.R.M.* 6.00% 6.173% APR *there is a 1 year pre-payment penalty on this option.
FHA LOANS - 3% down payment
With 1 point origination fee – 60 day lock
30 year fixed rate 6.25% 6.713% APR
With no origination fee – 60 day lock
30 year fixed rate 6.625% 6.962% APR
FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.
These are just a few of the 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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the rest of the week mortgage bonds got demolished and fixed mortgage interest rates rose about 3/8s of a point to the highest they have been all year. Mortgage bonds got hammered even as some of the factors that had been responsible for the recent rise in rates seem to be turning. Oil prices fell sharply this week down to $128 per barrel, the dollar strengthened, the Government announced a plan (sort of) to 
This may be wishful thinking. Coming a week after Indy Mac failed, and days after the potential bail out of Fannie and Freddie was announced, the market may be getting ahead of itself. Merrill Lynch announced another $9.7 billion in credit write downs which says that the credit crunch is still not over. With home prices down and less access to the home equity, we are seeing a reverse of the wealth effect. People feel poorer and they are less likely to spend money if they don’t have to. The stimulus checks have mostly been spent, and this kept the economy out of an official recession, but the pop is now gone. The stock market had a great week, but my guess is that fear will set in again over the next few weeks, and the pattern will reverse itself with money flowing out of stocks and into bonds. I expect that rates will come back down again in the coming weeks.
were on the edge of insolvency. Not just the mortgage market but our entire economy are dependent on the health of these organizations. It’s always been assumed that the government would do whatever was necessary to keep them afloat. The question was more a matter of what they would do to support them, whether the stock would remain solvent and who would foot the cost.
Stearns. If left to fail on its own, it was feared that this would set off a panic that could shake our financial system to its core. Since then we’ve been told that the worst was over, and even though the housing market was still a mess, our economic foundations were strong. This week the bullet we missed with Bear Stearns is looking like a pea from a pea shooter, and we have a nuclear missile headed our way (Where is Superman when we need him?) The stock of Fannie Mae and Freddie Mac, the two pillars of our mortgage finance system, dived this week as the loss of liquidity pushed these giants toward insolvency. Both stocks lost about 45% of their value this week and are down about 90% in the last year. With the stock prices this low there is no way they can raise the cash they need to continue operating in the markets. If the worst comes to pass, this means 2 possibilities: a bailout where the government funds the organizations, or a receivership or complete government takeover. 
Everyone agrees that Fannie Mae and Freddie Mac are too big to fail. If it gets to that point the government will surely step in and do what is necessary to keep the mortgage market going. But the question then becomes how would they do this? The debt is so huge (even backed by the homes supporting all those mortgages) that it would be equal to almost ½ our current national debt. After the panic first started, Fed officials, Treasury Secretary Paulson and statements from both Fannie and Freddie assured everyone that there was no crisis. But a panic is a panic. The market calmed down a little Friday afternoon, but this will come back as an issue. Maybe this coming week, maybe later. We are still in a severe credit crunch this fear only tightens it another notch. What it means for consumers is that conventional mortgages are likely to continue their trend of becoming harder to qualify for and more expensive for those who can qualify. On the good side, there is almost no chance that the Fed will hike rates any time soon. 
which will ratchet loan approvals a little tighter still. 
The other big change is that Fannie Mae brings out their new version of their automated underwriting system, DU 7.0. Most conventional loans are approved through the automated underwriting system, so this will have a huge impact on how loans are approved. On the good side, this version does away with the declining market policy. Last December, in a reaction to the down turn in the housing market, Fannie Mae came up with a plan to identify markets where the prices were falling, and require a higher down payment in those areas. The plan basically made it harder to get financing in the areas that needed it most, and was not a popular move. So getting rid of this plan is a step in the right direction. It will be looked at as a bigger step if the mortgage insurance companies follow the lead and stop their declining market policies, too. The rest of the changes in version 7.0 are not going to be positives for mortgage borrowers. Some of the changes include:
I think these are all accurate predictions - if oil keeps going higher - but if history is a guide, I think it will be a while before we see any of these predictions come off in a major way. Oil prices were around $90 per barrel at the beginning of the year, so we have had almost a 50% increase since then. The question is whether the prices will continue to climb and, how far will they go. My guess is that we will have higher gas prices long-term, but there are reasons to think that prices will come down some first, and that we will get used to higher prices.
one hand, the property values are down and you are able to buy a home at a bargain price compared to where homes were selling just a year or two ago. On the other hand, you wonder if we are near the bottom, or if the bargain you buy now will seem over priced a year from now. The truth is that markets (whether stock markets, bond markets or real estate markets) are unpredictable, and we won’t know where the bottom was until we have gone past it. That being said, I’m not sure we are at the bottom yet, but it is 
Now the pendulum has swung and we are on the fear side of the equation. At some point, probably when property values started to move down in the hottest markets, Wall Street saw the risk they were taking. They cut off the money spigot and since then mortgage underwriting has gone through a series of tightening measures so that it is harder to qualify for a loan now than it was before the whole loose money party started. With less people qualified for financing that means less people are able to buy. Lower demand means lower prices. So now fear has taken hold and everyone is looking at all the negatives. Foreclosures are up, the economy is soft and the inventory of homes for sale is the highest in years. Right now we are going through a cycle where the bad news in the market causes the lenders to pull back even more, reinforcing the bad news and making it that much harder for the market to recover. But markets are unpredictable and hard to time right. At some point the bad news will be less important than the opportunities for profit. In the stock market the recovery usually starts when people are the most pessimistic and it could work the same way in our market. By the time good news is out, we will have bounced off the bottom and prices will be heading up again. So the question is, is the time now? Are we close? 
October of this year is eligible, and with payouts of up to $600 per individual and $300 for each child under 17, this should cover several tanks of gas. What are you planning to do with your check? The idea behind the checks is the hope that if everyone goes out and buys something, this will kick the economy back in gear. There are of course, a few problems with this theory. First of all, not everyone is going to buy something. If you are feeling the economic pinch, you might rest easier putting this money in your savings account or paying off your credit cards. And those who do their civic duty and go out shopping are likely to buy foreign goods which will give a more limited kick. But if the checks make people feel more confident about their own finances, then the plan will have done its job. I think it will take more than this to prime the pump.
or client who put an offer on a pre-foreclosed property (a short sale – this is where the lender would have to agree to let the buyer buy for less than the full amount of the mortgage so they don’t have to go to the expense of foreclosing the property) 3 months ago. He’s still waiting for an answer. I called the number on the sign and was referred to a web site. The web site offers several tours in an “air conditioned bus” stopping at a variety of pre-foreclosed and bank owned properties. A Realtor is giving the tour and you will be able to make offers on the homes if you choose. The bus isn’t free, though. A ticket for one tour cost about $100, another tour of luxury homes was priced at over $300. But lunch is included. It is a sad fact of life that foreclosures are on the rise, even in the nicest areas. But if you are looking to invest, you don’t have to take a bus. If you are looking for investment property and need the name of a Realtor who can help you, let me know and I’ll direct you to an expert who can offer personalized service.