Stocks surge in July sending refinance rates higher
Refinance mortgage rates are moving up quick in the month of July. The stock market rally back above the 9000 point level is one of the key ingredients driving mortgage rates to move higher. The stock market has rallied over 800 points in the month of July pushing the DOW above 9000 points for the first time since January of this year. Mortgage rates have moved up almost .5% for the month, pushing the average rate for a thirty year fixed rate loan above 5.5% with national mortgage lenders.
The market has rallied from an early month sell off based on key economic and investment reports that have helped investors regain confidence that the equity markets are stabilizing. This month, investors have been greeted with a better than expected housing report, a key ingredient with rebuilding confidence in the economy. The improved housing numbers can be directly tied into historically low mortgage rates and abundant housing supply. Combining the low mortgage rates with the government tax rebates have started to bring buyers back into the market.
Corporate earnings have been much better than most experts had predicted. This month, companies such as JP Morgan Chase, Ford Motor Company, Goldman Sachs and Caterpillar have all posted excellent earnings report. These companies have been instrumental in calming fears of a long term economic recession. The reassurance for investors that corporate earnings for 2010 are a going to be better than expected has been a critical factor with equity investors who drove the market down to the 6500 point level in March of this year based primarily on fear of a world wide economic meltdown.
The likelihood of refinance mortgage rates remaining at historically low levels for the remainder of 2009 should be pretty good. The FOMC is closely following the secondary mortgage marketplace, and Ben Bernanke is on record indicating they would be proactive in helping to keep rates low and improve housing. The Fed, has played a critical role in driving down mortgage rates to below five percent earlier this year and helping to spark a mortgage application bonanza as consumers rushed to refinance and lock in low mortgage rates. There are a number of key factors that should help keep mortgage rates between five and six percent for the balance of 2009:
• Low levels of inflation in the market
• High levels of unemployment
• Conservative investors who want to remain invested in bonds
• FOMC commitment to keeping mortgage rates low
The probability of mortgage rates ranging in a one percent trading pattern is very strong. With the above factors working to keep rates in check over the long term, home owners considering purchasing a new home or refinancing their existing homes will need to gauge market direction when they are looking to lock in their rates. Interest rates have been relatively stable in 2009 and have rarely moved up more that .25% in a weeks time, however things could change and lenders that offer borrowers rate locks with float down options are providing a great service in today’s economic marketplace.
Refinance rates ride the roller coaster
Mortgage rates have been on a roller coaster ride over the past month as refinance loan rates have moved higher and lower sending anxious consumers for a wild ride. The last thirty days has marked a significant move with the stock market which has traded in a range of over 700 points, while the yield on the ten year bond has traded between 3.3% on the low end and 4% on the high end. to 3.3% during the same period. Mortgage refinance rates have hit the high mark of six percent and dropped down to a low of 5% over the last thirty days.
Consumers who are in the market for a mortgage loan are stuck in a position of uncertainty as to whether to lock into the market or take a chance that rates could move lower. The rapid jump with interest rates can be directly attributed to the rise with the stock market, following a bottoming out in March. As the stock market approached the 9000 point level, investors began to pull out of the bond market and sending yields (rates) significantly higher. During this same period, bond investors also began to become increasingly nervous about the large level of the U.S. deficit and whether the international buyers would continue to purchase Treasury bonds. This concern was a key factor in sending the yield on the ten year Treasury bond above 4% for the first time in the past six months and driving long term fixed rate mortgage loans above six percent.
The last thirty days have seen fixed rate mortgage loans gradually begin a pullback with rates. The stock market sell off has been a large factor with helping to drive investors back into the bond market, driving the yields on bonds lower. The market sell off can be directly linked with investors who grew concerned that the U.S. economic recession would likely last well into 2010 as reports such as the June labor market report showed considerable weakness within the economy. Investors who were looking for safer investments and less risk have moved back into bonds and this help drop the yield on the ten year bond back under 3.4%.
July has brought more movement to the market, the stock market has begun to rally off of the thirty day lows, moving above 8500 points, a sharp move upward. The large upward movement with stocks has coincided with the yield on bonds moving above 3.5%. Fixed rate mortgage loans for thirty year loan terms are now in the mid five percent range. The trading range for interest rates appears to be firmly between 5.5 to 6% without a firm movement in the market above 9000 points or below 8000 points. Freddie Mac, one of the nations largest loan services provides a free weekly mortgage review which can be found here. Homeowners who are in the market to refinance their home should consider working with a mortgage lender that offers the ability to lock in their rate, but also relock into a lower interest rate if the market improves. The ability to relock the rate, is often referred to as a float down refinance option.
Obama revamps refinance loan modifications
The Obama administration announced changes to the Making Home Affordable program this week, aimed at helping home owners who are severely “underwater” with their property values. The government continues to try and fix the housing crisis without addressing the crux of the issue, altering mortgage balances. The government announced on Wednesday that the refinance guidelines in the MHA program would be altered to allow for loan to value ratios to move from 105% to 125%.
The changes, announced by Secretary Geithner are likely a reaction to the recent home foreclosure reports that are showing properties are continuing to more into foreclosure at a record pace. The housing market has been battered by bank owned properties and home foreclosures, which sell for twenty to forty percent below comparable property prices within their marketplace. The surge in home foreclosures over the last twelve months has led to one of the largest declines with home values, and markets such as California, Arizona and Florida are amongst the hardest hit areas.
There are a growing number of critics who don’t believe that the government’s actions will be aggressive enough to slow down the foreclosure spiral. They point to the original goal of helping five million homeowners refinance their mortgages, with less than 80,000 applications take to date. The record low mortgage rates that the market has benefitted from this year has been an asset to helping home owners refinance their mortgages who have equity or elect to refinance into an FHA mortgage loan, but homeowners who don’t qualify for a conventional loan and are turning to the MHA programs have reported numerous stumbling blocks with their lenders and servicers. The challenge is a homeowner who is upside down, must work in conjunction with their lender and either Fannie Mae or Freddie Mac to help refinance their mortgage. The process which is taking upwards of ninety days is failing to provide the relief to homeowners who need help the most, during one of the worst economic periods.
The major complaint with the governments approach is that it does nothing to address the balance of current mortgage loans. Altering or reducing the principle balance of a mortgage is likely the surest way to help stabilize the housing market. Home owners have increasingly decided to simply walk away from their homes, rationalizing the damage they will do to their credit is a better decision than paying back a mortgage balance that is forty to eighty percent higher than their homes current value. Historically, homes appreciate between two to five percent, and a consumer can generally restore their credit in 3-5 years, figuring they are better off financially with ruined credit but out from under a mortgage on a property that could take ten years or longer to reach breakeven on. Without addressing principle balance reductions, there is little reason to believe the latest government actions will have any meaningful impact at reducing foreclosures this year.