Illinois Mortgage Rates Weekly Update
21st June 2008
Welcome to Illinois Mortgage Rates and News week in review for the week ending June 20th, my take on the week’s financial news and how it affected Illinois mortgage rates.
Is it over yet? Not so long ago the big worry was that our economy was on the brink. Bad mortgages and the lack of 
credit were choking the system. Big banks and financial powerhouses were on the edge of failure and our whole economy was in the danger zone. The Fed moved decisively to inject credit into the financial markets and stem the panic. Wall Street breathed a sigh of relief, but the easier credit didn’t trickle down to the small business or home mortgage markets. On Main Street the stranglehold still seems pretty tight. The economy hasn’t been growing, but with the rate cuts and stimulus checks there have been some signs of activity. And now with gas and food prices spiking up, the worry has turned from the softness in the economy to the threat of inflation. Over the last few weeks mortgage rates headed higher as the financial community, in mass, called for higher rates to stop the inflationary spiral that was about to hit us. Last week it became official that the economy was on the road to recovery when former Fed Chairman Alan Greenspan announced that the credit crunch was over, or would be soon. This week a new message is coming through – not so fast, we might not be out of the woods yet.
The news and reports released this week were once again mixed. Oil prices headed higher again, but the producer price index showed that inflation, outside of the fuel and food costs, was within the expected range. New housing starts are at their lowest pace since 1991, confirming the softness in the housing market. The Empire State and Philly Fed indexes came in lower than expected, again showing softness, but new job claims came in slightly better than expected. The biggest market movers this week came from the stock market. Earlier in the week Fed Ex announced that their business is under pressure. This is partly because with a slowing economy fewer packages are being shipped, and with high gas prices their cost of doing business is much higher. On Thursday Citigroup announced that they would be writing off more substantial losses due to their mortgage portfolio. Merrill Lynch is rumored to be in the same boat. This throws water at all the pronouncements that the worst of the credit situation is over. Food and fuel prices are rising way too fast (speculation?) but the higher prices aren’t translated into higher wages and most companies are being forced to absorb the extra costs rather than pass them along to the consumer. If inflation is a major problem, the only way to get rid of it is an economic slowdown. This is why so many have called for the Fed to raise rates again. But if a new round of write offs are in the works from the major financial companies, this means we still don’t know how bad the situation is and how much more bad debt is still out there. It’s hard to see the Fed raising rates any time soon if the economy is still contracting.
Mortgage bonds improved some this week, bouncing off of their worst showing in 6 months. Mortgage rates are better this week, but still facing resistance. We will see if they are able to break through this resistance over the next few weeks, in the mean time any news of higher inflation could send rates higher. If you are applying for a mortgage don’t roll the dice, lock in your rate at application.
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 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% 6.589% APR
15 year fixed rate 6.00% 6.175% APR
5-1 A.R.M. 5.625% 5.788% APR
7-1 A.R.M. 5.875% 5.989% APR
For Jumbo loans over $417,000
30 year fixed rate* 6.875% 6.997% APR – Requires 20% down payment
7-1 A.R.M.* 6.125% 6.327% 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% 7.190% APR
With no origination fee – 60 day lock
30 year fixed rate 6.50% 7.238%
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. A lot of information will hit the mortgage markets next week, not the least of which is the Fed meeting on Wednesday. Expect another volatile week for mortgage rates.
Illinois Mortgage Rates and News
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inflation and recession have been pretty much equalized, and though there were extreme moves on a day to day basis, it seemed that by the end of the week the market was back close to where it started. That changed this week as mortgage bonds fell out of bed and out of this range sending mortgage rates higher. There were economic indicators cited as reasons behind the move, but these indicators aren’t saying that the economy is back on track, and they aren’t pointing to raging inflation either. The indicators are mixed, as they have been over the past months, showing our economy is still muddling along and inflation is a factor, but more of a future threat than a present menace. So it’s not that the economy has suddenly changed, it is the perception 
I’ve written before, mortgage interest rates go up and down based on activity in the mortgage bond market. Mortgage bond traders are the financial market’s version of tea readers or fortune tellers. Collectively, they take in all the data as it is released, make split second judgments on how the data will affect the value of their investments over the long term and buy or sell the bonds based on their predictions. And they do this throughout the day, each day. A lot of money is riding on each decision, and the pressure to get the call right is enormous. This is especially true in our current market where volatility is so high. So as the information is released, all the traders make their decisions, usually assuming the worst. Later, it’s not uncommon that they look a little deeper and change their minds about the impact of the data. We saw great examples of that this week.
jobs each month, just to stay even. A loss of 20,000 jobs means we are 170,000 jobs worse than we need to be just to keep running in place. By the time lenders released rates in the morning, the loss was much lower, and at points in the day mortgage bonds traded in positive territory before ending with a moderate loss for the day. But this doesn’t tell the full story. The jobs report is the most anticipated report released each month, but it is almost never right. The report is based on a historical model, and much of it is compiled by assuming that the numbers will correspond to historical averages. This means that when the economy is growing the job gain is underreported, and when the economy is contracting job loss numbers look better than they really are. We are in a contraction now, and the previous reports have all been revised downward as the real numbers came in. So expect that these numbers will end up worse than reported, too.