Thursday,
July 3
Posted
11 a.m. EDT
JOBS
REPORT:
The economy shed 62,000
jobs in June, according
to the Labor Department,
and the unemployment rate
remained 5.5 percent.
Those numbers are slightly
worse than the consensus
estimate, but the result
on mortgage rates has
been negligible so far
this morning.
Normally,
worse-than-expected economic
news is followed by declines
in mortgage rates. But
that's not an ironclad
rule. Right now, bond
investors are more concerned
about inflation and credit
quality than about a recession.
As a result, we seem to
have landed on the floor
for mortgage rates.
I don't
think mortgage rates will
go down from here. The
esteemed mortgage experts
who vote in Bankrate's
Rate
Trend Index disagree.
A plurality of the RTI
voters think rates will
fall over the next few
weeks.
In my opinion,
investors are becoming
increasingly skittish
about mortgage delinquencies
and foreclosures. They
favor ultrasafe Treasury
debt over mortgage-backed
securities. Thus, the
spread is widening between
the 10-year Treasury yield
and the 30-year fixed-rate
mortgage.
In yesterday's
Bankrate survey, the 30-year
fixed averaged 6.53 percent.
The 10-year Treasury yielded
3.99 percent at the end
of the day. The difference
between those two rates
is the spread. Yesterday
the spread was 2.54 percent.
Essentially, the spread
is investors' way of saying:
"Here's how much
higher the rate needs
to be if you want me to
assume the risks of buying
a mortgage." That's
waaaaay ovesimplifying
things, and I'm eliding
the difference between
a mortgage-backed security
and a mortgage, but the
principle holds.
To repeat:
Yesterday, the spread
between the 30-year fixed-rate
mortgage and the 10-year
Treasury was 2.54 percentage
points. A month ago, the
spread was 2.35 percentage
points. A month before
that, it was 2.26 percentage
points. These are signs
of a trend of investment
dollars flowing away from
riskier mortgages and
toward safer Treasuries.
To be sure,
the spread can snap back.
After all, at the beginning
of April the spread was
2.52 percentage points.
That's almost the same
as now. Then the spread
fell to below 2.25 percent
for a couple of weeks
in May. It's possible
that this will happen
again -- that mortgage
rates will fall when compared
with Treasury yields.
That's what our RTI voters
believe will happen. I'm
not so hopeful.
STATED-INCOME
BLUES: "When
will lenders revisit stated
income loans?" writes
a reader named Ray. "In
particular, home purchases
with a LTV (loan-to-value) of 90 percent
or better and a FICO Score
between 680 and 720? This
applies to a one- or two-family
house."
I asked
Michael Moskowitz, presidenty
of Equity Now, a mortgage
lender based in New York
City. He laughed. "Hopefully
never," he replied,
explaining that these
are the mortgage deals
that got the industry
in trouble.
Stated-income
deals for people with
good credit scores are
still being done, but
you'll have a hard time
finding anyone who will
do it for over 75 percent
loan to value. Stated-income
deals at 95 percent loan
to value might never come
back.
Wednesday,
July 2
Posted
11 a.m. EDT
SURVEY
DAY:
Today is when Bankrate
conducts its weekly mortgage
rate survey. Last week,
the 30-year fixed averaged
6.62 percent. I'll guess
that today it will average
6.55 percent, down 7 basis
points.
To put that
in perspective, the average
rate on the 30-year fixed
since the beginning of
2000 has been 6.5 percent.
The median since the beginning
of 2000 is 6.32 percent
-- half of the time it
has been higher than that,
and half the time lower.
The median
so far this year has been
6.13 percent.
This means
that rates are a bit on
the high side lately.
A few years ago, few people
would have said a 30-year
fixed at 6.62 percent
was on the "high
side." That's what
years of sub-7 percent
rates will do.
CONFIDENTIAL
TO R: You wrote:
