As we expected, the day after the Dow had an 11% Columbus Day Rally while banks were closed and mortgage backed securities were not being traded, we saw mortgage rates continue the steep climb they had begun at the end of last week. Right after the lunch hour, Mortgage Backed Securities have lost 50 basis points in value and the 30 year fixed is hovering around 6.75%.
The LIBOR index, which is an index that most adjustable rate ARMS are based on, also improved slightly as well to 4.635%. If you add the usual margin of 2.25%, a loan adjusting today would reset to 6.875% when rounded to the nearest eighth of a point. That isn't good news for someone who has been in the 4% or 5% range for the last 3 to 5 years. But with 30 year fixed rates where they are right now, it doesn't make sense to refinance out of the ARM at the moment.
I am advising my clients in that situation to let the ARM reset and get a file ready in my system so I can be ready to pull the trigger and pounce on a good rate for them to refinance when the right moment comes and rates drop again.
As I said yesterday, the 11% gain on the Dow was a huge potential sign that we may have hit bottom. Markets around the world are also having good days. Interestingly enough, yesterday was 6 years and one day after the market hit bottom on October 9th, 2002. The cycles in the market are amazing, albeit painful, to watch. I got an email from a dear friend last July that accurately predicted EVERYTHING that we have seen happen since then. The email said we would peak in October, correct at least 20% but probably more, banks would fail, Fannie and Freddie would become insolvent and need government help and that instead of the word recession, we would be discussing a depression. I prayed they were alarmists and that they were wrong. But it all happened. Now I listen very carefully when that friend speaks.
Today began with speeches from President Bush, Secretary of the Treasury Paulson, Fed Chair Ben Bernanke and FDIC Chairman Sheila Bair. They were discussing the weekend talks with the G7 members and their plans to use the first $250 Billion of the $700 Billion Rescue package to guarantee commercial paper and non interest bearing business accounts as well as buy shares in major banks and financial institutions. The Dow started out the day up over 300 points but spent the rest of the day hovering right around even. The good news is we were able to hold on to the previous day's gains. There seem to be positive feelings about what was presented. For the sake of everyone, let's hope that momentum continues.
As for mortgage rates, I think we have seen a quick run up in rates that I don't think will remain constant. I am also not advising my clients to lock today because I am expecting them to calm down a bit in the coming days.
By Ronny Loew - Ronny is the Next Home Specialist with MN Home Loan Partners. Whether you are moving up, downsizing, relocating or keeping your home as an investment and buying a new primary residence, Ronny has specific strategies to make it easy and a financial win. He can be reached at 952-808-2815 or rloew@houseloan.com
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