Mortgage Market Recap for the Week Ending 11/28/08

Happy Thanksgiving this week!  It’s taken me until Sunday night to post my mortgage market recap.  Apparently I’ve been enjoying the long weekend at the expense of business!

Well, at this point the exciting week is well known by all.  Tuesday’s announcement by the Fed created the confidence in Mortgage Bonds that we saw several months ago … the difference was that this is the follow through that was anticipated at that time - but never materialized … until Tuesday.

The market’s response to the announcement makes my blog entry of last week look like I’m pretty good at seeing the future.  I’d love to run with that thought - but that would just lead to increased expectations … and that’s never good.

Look to the candlestick charts below - first one is the macro picture including the moving average lines - the second is the micro picture so you can see day by day moves.

As I’ve been getting more active on twitter (follow me at www.twitter.com/ken_stone) I’m noticing that some mortgage lender refer to the 10-year Treasure Note as the critical index to watch for mortgage rates (this is wrong) - and others referring to mortgage bonds (and they’re really talking about the 10-year Treasury Note).  When I talk about mortgage bonds, I’m talking about Fannie Mae Mortgage Backed Securities.  This is what Fannie Mae fixed-rate mortgages are priced from.  That’s it - nothing else. 

I spoke with a analytical type about refinancing his mortgage last week prior to Thanksgiving and he was concerned that mortgage investors are “padding their pockets” due to the spread between the 10-year Treasury Note and where fixed rate mortgages are (sub 5.5% for much of the nation) citing the historic spread between the 10-year and fixed rate mortgages.  I helped him understand what he should be looking at - and pointed him to my prior postings about this spread of late.

So what’s to come?  Look at the candlestick charts.  I’m betting tomorrow will either be a breakout day - with mortgage backed securities moving higher (lower rates) through overhead resistance that has - so far - been enough to stop the upward march … or mortgage bonds will move lower to test support.  I’m hoping for the former … tune in tomorrow morning to learn what’s happening (look to my twitter tab on this blog for daily updates).

Here’s the other thing to keep in mind.  If  you (or your clients) are wanting to lock in your rate - but thinking rates might drop - keep in mind that I offer my clients a free float down to market rate as long as we’re not on top of your closing day.  So you can get a “security” lock at let’s say 5.375% then float down to a lower rate should the current trend continue.

Thanks for reading!

I’ll post back soon,

Ken