• Address: Fairfax, VA 22030 (map)
• Date Posted: 10/17/09

Shamun Mahmud
Commercial Capital Limited
10800 Main Street
Suite 150
Fairfax, VA 22030
http://www.3stepcontact.com/app/app/link.cfm?id=41545541405342595F415952&link=mailto%3Ashamun%40betterloansNOW%2Ecom

(703) 879 - 1779
(800) 460 - 1921

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Octobber 13, 2009

The Spreads Change Again

We have been in a fairly long-term trend in which signs of recovery are accompanied by higher stock prices, higher oil prices and higher interest rates. In other words, when the stock market rallies, the bond market weakens. Though this may be true on a day-to-day basis, if we look closely at the trend, it has been broken. A few months ago we mentioned that this trend must be broken because high rates would choke off a fragile recovery. And now it may have happened. Let’s look at the evidence. On Thursday of last week the Dow was approaching 9850 or close to its high for the year and pretty close to a 12-month high as well. With regard to rates, though the yield on the 10-year note is up a full percentage point from the low hit during the height of the financial crisis almost one year ago, it is down significantly in the past three months. Even more importantly, rates on home loans again hit the historic lows reached earlier this year before bouncing back on Friday.

Why is this happening? For one the Federal Reserve Board continues to purchase mortgages and this is supporting rates on home loans. With regard to the markets it is hard to say why they act as they do. It seems that every time the stock market starts to correct after its long run, it rebounds. Last week we had good news on initial unemployment claims which seemed to assuage some of the fears produced by the weak employment report released for last month. Otherwise the data was light and we are expecting more activity and reaction to data this week such as retail sales and consumer inflation.


The Markets.
Rates moved close to historic lows in the past week. Freddie Mac announced that for the week ending October 1, 30-year fixed rates averaged 4.94%, down from 5.04% the week before. The average for 15-year fixed fell as well to 4.36%. Adjustables followed the same downward trend with the average for one-year adjustables falling to 4.49% and five-year adjustables decreasing to 4.42%. A year ago 30-year fixed rates were at 6.10%. "Long-term rates eased further this week," said Frank Nothaft, Freddie Mac vice president and chief economist. "Rates for 30-year fixed-rate loans were the lowest since mid-May; 15-year FRMs were at a record low since data were first collected in 1991 and 5-year ARMs also hit an all-time record starting in 2005. Compared to a year ago, consumers could shave almost $134 off their monthly home loan payments on a 30-year fixed-rate for $200,000 by refinancing. Such low rates are spurring demand. Applications surged to a 19-week high over the week ending on October 2nd, according to the Mortgage Bankers Association of America. Moreover, applications for home purchases were at the strongest pace since the beginning of this year." Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.



Current Indices For Adjustable Rate Mortgages
Updated October 9, 2009

Daily Value

Monthly Value

Oct. 8

September

6-month Treasury Security

0.15%

0.21%

1-year Treasury Security

0.35%

0.40%

3-year Treasury Security

1.40%

1.48%

5-year Treasury Security

2.22%

2.37%

10-year Treasury Security

3.27%

3.40%

12-month LIBOR

1.271% (Sept)

12-month MTA

0.632% (Sept)

11th District Cost of Funds

1.412% (Aug)

Prime Rate

3.25% (Dec)

Some congressmen are becoming more concerned about the Federal Housing Administration’s financial plight and they want to increase FHA’s downpayment requirement to 5%. Rep. Ed Royce, R-Calif., said FHA is operating at the same dangerous leverage ratios that led to the takeover of Fannie Mae and Freddie Mac. Rep. Scott Garrett, R-N.J., said he has drafted a bill that would increase the FHA downpayment requirement to 5% from the current 3.5% level. "There are increasing reports of the likely necessity of a taxpayer bailout for the FHA and this legislation aims to implement reforms to try to prevent such a bailout from occurring," Rep. Garrett said at a House Financial Services Committee hearing. If this bill is passed, it would come on top of additional tighter requirements already implemented by FHA, including restrictions on refinances which are to become effective in December. Potential first time buyers may be advised to act now before qualification for the most popular first time purchase program in the nation becomes more difficult. Sources: National Mortgage News and HousingWire

Now could be the perfect time to buy a home for your post-employment years. After all, home prices are down an average of 10 to 20 percent from the peak in most areas of the country and as much as 40 percent in some of the most appealing retirement areas. Here are some factors that a potential buyer of a retirement property might consider: First: Moving to an area that has been hard hit by the housing downturn, like Miami or Las Vegas, can mean great prices for buyers. In addition, trading a big home for a smaller property will reduce the cost of maintenance, insurance, and taxes. Finally, buying a property now and renting it out can be profitable in the right areas as more people today prefer renting to owning. Source: Money Magazine

More people are becoming landlords in an economy where selling a home can be challenging. The nation’s second-largest home insurer, Allstate Corp., says the number of homeowners converting their homeowners insurance to landlord policies rose 27 percent in the first quarter of 2009. Jim Bass of Jim Bass Real Estate Group in Frederick, Md., says he has begun offering property-management services for absent owners, many of whom are convinced it will be easier to sell in a couple of years. One factor to consider is whether renting will reduce or eliminate the value of the capital-gains tax exclusion. Federal tax law requires living in the home at least two of the previous five years to qualify for the full capital-gains tax exclusion when the house is sold. Of course, if there is no profit to be had, then this isn’t a problem. Source: The Wall Street Journal



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