Rates as of 7/30/10 

7:45am update: Now mortgage security rates and stocks are slightly up on the day after being moderately down in early trading.

7:10am post:  Mortgage security rates are slightly lower on the day athough higher than early this a.m. as rates continue to hit new historic lows. Long term Treasusry rates are moderately lower.  Stocks are down.2% recovering from early losses.  The Chicago PMI and Consumer Sentiment rpts were better than expected although still weak. Earlier the 2nd Q GDP was 2.4% annual growth down from 3.7% in Q1; Q1 growth was revised up from the previous 2.7% estimated growth rate. The Q2 growth was as expected but the markets reacted to push rates and stocks lower on the news.(more rate outlook  analysis below)      __________________________

(all rates subject to rate adds for less than excellent FICO scores, higher LTVs, loan amount adjustments and for Cash out)____________________

RATE OUTLOOK (cont.)    

Mortgage rates came down sharply beginning in 11/08 as the Fed acted for the first time in history to directly lower mortgage rates by buying mortgage securities.  On 12/17 and 3/18/09 rates plunged following Fed announcements of programs to buy more mortgage securities with the intent of lowering mortgage rates.  Rates spiked .75% in late May and early June. But rates improved in mid 6/09 as doubts arose as to how strong the recovery would be.  Mortgage rates stayed in a relatively narrow .25% range during the summer but improved in the fall to get back near the spring lows in early Oct. and in late Nov. hit new lows before moving up a bit in 12/09. Rates have moved down a bit just above the 11/09 lows, were pretty stable in 2010 until 3/24 when rates spiked as the Fed ended their mortgage security purchase program.  When the Euro debt crisis flaired in the spring rates steadily declined to hit new all time lows in late June before going even lower in July. 

If you can save significantly at current rates they should not be passed up. Timing the very bottom or top of any market is nearly impossible. If you do not have a good fixed rate it makes sense for almost everyone to get one at these historical low rates.  When the economy improves it could be many years before we see rates this low again especially because the actions to cure the crisis will almost certainly result in an inflation problem when the economy starts to grow again.  With all the uncertainty it makes sense to have your rate locked in for as long as possible.

Long term interest rates, including mortgages, are controlled by daily trading in the bond market.  The bond market actions most often preceed the Fed as the market participants are able to analyze the same data that the Fed sees.  The law of supply and demand say increased borrowing from the gov't bailout of the financial system (as well as the huge budget deficit) will have an upward pressure on rates at some point when the economy recovers.  We can expect that long term rates will rise before the Fed starts to raise the short term rates.  Additionally the Fed's $1.25 Trillion program to purchase Mortgage Backed Securities ended in 3/10.  This program probably gave us lows that were .5% lower than they would otherwise have been .  Also to consider is that the Fed is likely to sell the $1.25T of mortgage securities they now have on their books at some point that will have the impact of raising mortgage rates in future years.

INTERMEDIATE TERM AND SHORT TERM RATES:  Short term rates are driven largely by the Fed's actions.  Intermediate term rates (3-7 yrs.) are in between and are more influenced by the Fed's handling of short term interest rates than the long term fixed mortgages are.  Jumbo intermediate term loans are about 1% below the jumbo fixed rates because of some lenders willingness to hold the intermediate term loans in their portfolios. 

The Prime Rate has been  3.25% since the 12/16/08 Fed rate cut, so prime tied HELOCs are very cheap money after having spiked to over 8% three years ago.  Lender cutbacks have tightened the availability of this money significantly so it much harder to get a new HELOC and older HELOCs have had limits cut as property values drop.

The Fed cut short term interest rates by 5% from 9/07 to 12/08 when the Fed Fund rate was lowered to essentially 0%.  This left the Fed using other innovative programs to further stimulate the economy.  The next Fed meeting is 8/10/10.  In the first half of 2010 The Fed unwound emergency stimulus programs that provided extraordinary liquidity to financial institutions and markets.  But the Fed is not expected to begin raising rates until the recovery is well established which probably will not be until mid 2011.

Inflation continues to be low with the CPI showing consumer prices rising 2.1% in the last 12 mos. with the core rate being 1.3%. Annual core inflation (without energy and food) was 1.8% in both 2008 & 2009, within the Fed's target of 1.0%-2.0%  Total inflation was 2.7% in '09 after being only .1% in '08. Inflation is not an immediate concern as there has been huge asset deflation in housing.  The Fed & gov't moves to fight this will be inflationary in the long run.  But the slowly growing economy should keep  inflation controlled over the next year until the economy starts to grow at a good pace.

Borrowers with adjustable mortgages tied to Treasury & LIBOR indices and lines of credit tied to prime will continue to be helped by the low short term interest rates but beginning in 2011 will be exposed to the possibility of sharply higher rates.

Call for information on additional products.  Rates are subject to change.  Call to confirm current rates.

MORTGAGE NEWS

$10,000 State of CA tax credit for first time home buyers:   This credit is for buyers of existing or new homes between May 1 and the end of the year (or until the allocated funds run out).

$8000 federal tax credit -The credit is extended for purchase contracts entered into up to 4/30/2010 and a $6500 credit to some move up buyers has been added.  The income limits have been increased to $125k for single or $225k for a couple.  The  '08 stimulus plan provided for a tax credit for first time homebuyers between 1/1/09 & 11/30/09.  Unlike the 2008 $7500 credit, this does not have to be repaid over 15 yrs, (4/9/08 to 12/31/08).  

CONFORMING & FHA LOAN LIMITS:  The stimulus plan allowed for loan limits going back to 2008 levels ($729,750 for high cost counties including most of the Bay Area) thru 2009.  These limits are continuing through 2010. The conforming limit had been $417,000 in recent years until March '08 when these limits were temporarily raised to $729,750.  

ONLY THE SAFEST LOANS ARE GETTING THE LOWEST RATES:     Lending standards are very tight and there are more risk based pricing "add-ons".   Borrowers with lower credit scores get rates that are as much as .75% higher.  Before last year the conforming loans had no adjustments for credit score.  The rate add ons for rental property have increased a lot.  

the JUMBO LOAN MARKET is improving but very slowly. The jumbo crisis is over 2 .5 years old and Jumbo lending is still based on lenders who will keep loans in their portfolio.  Fixed rates vary widely with the lowest being about 6%.  Some portfolio lenders are making 5 and 7 yr. fixed loans at rates below 5% .  The rates have improved modestly in the last year but underwriting remains tight.