A Nation of Subprime Borrowers?
by: Brian.Brady on February 02, 2008 20:24:08 3 comments »
Mortgage rates have risen considerably since we advised our clients to lock all loans, purchase or refinance, on January 24. I said:
Don't hold out to see if the Fed will cut rates farther; the mortgage lenders have already anticipated a January 30 Fed cut and priced it into the market. If the Fed doesn't cut rates, mortgage rates are going to skyrocket.
If you were planning on refinancing your mortgage rate, the train is starting to leave the station and will quickly pick up steam. The opportunity to get a 30 year fixed rate mortgage rate under 5.5% may quickly disappear as lenders try to slow down demand. The last three days have been hectic with past clients calling me looking to lock-in a low rate. You have a window of maybe 48 hours to get that great mortgage rate.
Well, the Federal Reserve cut rates, 1/2%, on January 30, and the bond market didn't like it. Global buyers of US Treasuries and mortgage-backed securities believe that Bernanke is placating a "spoiled nation of sub-prime borrowers" and intend to hammer the dollar because of it.
Here's why they're wrong:
1- The dollar, battered as it is, still represents the strongest
currency in the world. Now I fully expect to take heat for this. The
strength of the dollar comes from our moral initiative and ability to
further 
that moral initiative (with 5-inch guns on a warship). In
short, I'm saying that the United States is the only country with the
courage to deal with terrorists and that moral courage will be
rewarded, long-term. When the dung hits the blades, the world buys
dollar-denominated securities.
2- Mortgage problems stem from a real estate valuation problem. Cheap money hyper-inflated values in the most desirable locations in the country and now those values are dropping. What goes up, must come down...BUT...it goes back up again. Don't count out the long-term prospects of California, Arizona, Nevada, and Florida. Teenagers in Buffalo long to live in Miami. Princeton undergrads yearn to work in Silicon Valley. Displaced auto workers find paradise in Phoenix. As long as people want to live in these areas (and they do), there will be an upward push on housing values...long term.
Why the low rates? Well, my bias stems from the fact that I live in the eye of the cyclone; Southern California. I KNOW that we're in a recession; I've been saying that for about a year. My litmus test is the chatter among parents at my daughter's school. Dads have been dropping off the kids in jeans, not ties, which means that their employment is, um... "curbed". Recessionary cycles mean lower mortgage rates.
Why the push to refinance today? It's the banks; they don't get it. Banks are reactive and not proactive. Bankers believe that the answer to an economic contraction is financial contraction. I think you should refinance your home loan if the rates are close enough to the bottom; we're about as close to bottom as we'll get. There may be room for another rate cut but I think banks will use that cut to pad their profits; they have a lot of losses to recoup.
What about the volatility of mortgage rates? Expect a lot of it. Professional mortgage originators are watching rates like a hawk. When we call with a recommendation to lock...do it. Many clients locked into really cheap home loans last week because of my careful market monitoring. Those that waffled, lost out. There will be a few more chances to get those great mortgage rates, in the next 3-6 months. Don't waffle when that opportunity appears.
Let me close with a disclosure about my bias. I think low mortgage rates will be here for another 6 months but remember... I am extremely biased because I live (and lend) in SoCal. I "feel" the recession. Call it a hunch or call it intuition but I don't think the economy's out of the woods, yet.
If this article causes you to rethink your mortgage options, tell me about your mortgage and I'll see if we can't improve your financial status.
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· http://www.JustCallNick.comYou bet Brian.. We are welcoming any and all buyers to our great state of AZ! :-)
Permalink February 02, 2008 20:59:16 · http://www.mainecoastproperties.comEverything will be be better now, the NFC won the Super Bowl. I would have written sooner but I've been in mourning.
Permalink February 05, 2008 04:09:07 · http://www.provestre.comIt's so nice to come to a site where somebody is telling the truth and making it plain. I must read a dozen articles or mord a day about this stuff and your straight talk is a breath of fresh air. Keep up the good work.
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