The Mortgage Minute Blog - Peter Grimm

The Federal Reserve adjourns from a scheduled, 2-day meeting today.  It’s one of 8 scheduled Fed meetings for 2010.

Upon adjournment, Fed Chairman Ben Bernanke & Co. will release a formal statement to the market. In it, the Fed is expected to announce “no change” in the Fed Funds Rate.

The Fed Funds Rate is currently in a target range of 0.000-0.250 percent.

The Fed Funds Rate is an inter-bank lending rate. It’s also the basis for Prime Rate, a consumer interest rate on which credit card payments are based, among other consumer loans.  Prime Rate is equal to the Fed Funds Rate + 3 percent.

Mortgage rates, however, may change.  The 30-year fixed mortgage does not correlate with the Fed Funds Rate.

The reason mortgage rates may change today is because, in its statement, the Federal Reserve will highlight various parts of the economy, identifying strengths, weaknesses and probable threats to growth. 

These observations influence investors with a stake in bond markets and future returns and, with Wall Street on edge right now, unsure of whether recent economic growth is a longer-term trend or a short-lived blip, mortgage rates could shoot higher or they could drop, depending on how traders interpret the Fed.

Further complicating matters is Greece’s recent debt downgrade to junk status. A small contagion fear is budding worldwide and as a result, the flight-to-quality has picked up steam. Mortgage rates are down because of it but could reverse higher at any time.

Mortgage markets worsened last week in see-saw trading. By the time Friday’s market closed, mortgage rates in Connecticut and across the country were higher across the board, ARMs, fixed rates, FHA and conventional.

The biggest stories of last week were actually the non-stories. 

First, the ash cloud from Iceland’s Eyjafjallajökull volcano dissipated, allowing warehouses to move inventory, airlines to move people, and businesses to move product.  In addition, Greece moved closer to securing emergency funding that will help it stave off default.

When these two issues were threats earlier in the month, mortgage bonds rallied on safe haven buying, driving rates down. As the threats lessened over the course of last week, however, mortgage bonds sold off and mortgage rates rose.

By contrast, this week features lots of stories. Economic data will be at the forefront, as will the Federal Reserve which meets for one of its 8 scheduled meetings of the year.

• Monday : Greece is expected to announce an aid package
• Tuesday : Case-Shiller Index reports on home values from February
• Wednesday : Fed adjourns from its 2-day meeting
• Thursday : Initial Unemployment Claims are released
• Friday : GDP and consumer confidence numbers are released

Furthermore, Wall Street will have its eye on the Senate’s questioning of key Goldman Sachs employees in the wake of the SEC’s fraud charge.

In general, news that’s “good” for the U.S. economy will be bad for mortgage rates, and vice verse.  And with mortgage rates changing as quickly as they have been, rates could really rise in a hurry.

The best defense against rising mortgage rates is to execute a rate lock. If you’re nervous about rates moving higher, call your loan officer and execute your rate lock today.

Mortgage rates and home affordability have improved lately, thanks to an unlikely ally — Mother Nature.

In the 7 days since Iceland’s Eyjafjallajökull erupted, ash clouds have grounded planes, disrupted businesses, and stranded exports in warehouses worldwide.

It’s a drag on commerce that’s spilled over onto Wall Street. As experts debate the potential for future seismic activity, traders are taking some of their investment risk off the table. 

In trading circles, it’s called “safe haven buying”. When the market gets cloudy, investors often move their cash into relatively safe assets.  This includes government-backed securities — mortgage-bonds among them.

Demand for bonds rise, pushing up prices and driving down rates.

Conforming and FHA mortgage rates in Connecticut touched a 3-week low earlier this week.

Volcanic eruptions and like natural disasters remind us: mortgage rates change for all sorts of reasons. Some we can predict, most we cannot. There are literally thousands of influences on the U.S. mortgage market.

If you’ve been shopping for a home or floating a mortgage rate, luck’s been on your side. Mortgage rates have fallen post-Eyjafjallajökull. However, as ash clouds dissipate and business resumes worldwide, investors will regain their collective appetite for risk and safe haven buying will reach its natural end.

When that happens, mortgage rates will rise.

Therefore, use the seismic uncertainty to your advantage.  Consider locking your mortgage rate sooner rather than later while rates are still low.

Mortgage markets improved last week to the delight of rate shoppers.

Against a sparse economic calendar, Wall Street turned its attention to geopolitics in Greece and the Euro-zone.  It didn’t like what it saw. Safe haven buying buoyed mortgage bond markets last week as pricing recaptured two-thirds of its monumental losses from the week prior.

Despite last week’s surge, conforming and FHA mortgage rates remain near their worst levels of the year and appear poised to increase throughout the summer months.

The U.S. economy seems to be improving.

• Pending Home Sales posted a strong monthly improvement
• Wholesale Trade data pointed to higher consumer spending ahead
• Inflationary threats on the economy are receding, according to the Fed

Furthermore, continuing jobless claims were down again.

Good news for the economy is generally bad news for mortgage rates. Last week, that wasn’t the case because of Wall Street’s want for “safe” assets right now.  This includes mortgage bonds and is helping to keep consumer rates low. When the safe haven buying eases, rates will most likely climb.

Meanwhile, this week the calendar is back-heavy. 

There’s no real data until Wednesday’s Consumer Price Index, and then there’s a flurry of new releases through Friday’s market close including Retail Sales, Consumer Confidence and Housing Starts. 

Strength in these issues should push mortgage rates back up.

If you’re floating or shopping a loan right now, be wary of market volatility. Rates have been jumpy since April 1 and mortgage rates are changing quickly. This week, locking in before Wednesday may be your safest, near-term rate locking strategy.

Mortgage markets performed terribly last week as losses piled up day by day.  It marked the second straight week of sell-offs.

Pricing was influenced on several fronts including better-than-expected economic data, the end of the Federal Reserve’s mortgage buyback program, and a short trading week.

Mortgage rates rose to their highest levels since late-December last week.

The data from most anticipated story from last week – the jobs report — included a few good-for-the-economy surprises.

1. Although payrolls fell 22,000 short of expectations in March, they were boosted by +62,000 in net revisions from January and February
2. “Temporary Employment” — a leading jobs indicator — is up 313,000 in the last 6 months
3. The average work-week and factory overtime both rose in March — a sign that hiring should increase soon

In general, what’s good for the economy is bad for mortgage rates and that’s one reason why rates spiked Friday. Employment is a keystone in the economic recovery and mortgage markets reacted accordingly.

This week is short on data but there’s a lot to move the markets.

For one, the Federal Reserve has called an emergency meeting to review its Discount Rate policy.  The meeting is called for today, Monday April 5, at 11:30 AM ET.  It’s unknown exactly what the meeting will cover, but if new monetary policy is made; expect that mortgage rates will be influenced.

Also worth watching this week are the technical trading patterns present in the mortgage-backed bond market.

Unlike fundamental trading in which markets move on data and projections, technical trading is how markets move based on patterns over time. The two methods co-exist on Wall Street but, occasionally, technical forces can be pronounced, leading markets to lurch up or down.  This week may be one of those times. 

Mortgage pricing is far below its 200-day moving average, resting slightly north of a key support level. If pricing worsens this week and bonds fall below the support level, mortgage rates could easily tack on quarter-percents or more per day until the market re-finds its balance.

Overall, it’s a week you don’t want your rate to be floating. Sure, rates could improve, but there’s a lot more room for them to worsen.