In breaking news, President Bush announced this morning an auto bailout of $13.4b with another $4b in February. The money will only go to GM and Chrysler and it is going to come from the TARP funds.

The reason for the sell off this morning, is the TARP funds are supposed to be for housing and banking, not the auto manufacturers. Thus, affecting the Mortgage Backed Securities Market (MBS). We are also seeing the stock market open higher, which is drawing money out of the bond market. It will be interesting to see if the rally in the DOW will continue.

It seems to me that the auto bailout is just buying time and not correcting the problem, so I wouldn’t be surprised for the ether to ware off and the DOW start to sell off which would bring money back into the bond market.

With where the price is on the current coupon, the FNMA 4.5, we should be seeing rates in the middle 4’s, but investors are unwilling at this time to pass along the gains. Lenders that need more volume of loans might price very aggressively, and lenders that have too much business will price very weak.

It appears we are heading for a bumpy road today and to make it even more bumpy it is quadruple witching day which means A day on which contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire. This creates a lot of volatility.

I am getting a lot of emails and calls from clients reading my blog. Many of these questions are asking if they should go ahead and lock. If you can lock a 30 year fixed rate mortgage under 5%, it would not be a bad idea to lock. You can chase rates for a long time, but if you are happy with the rate and the cost, locking is never bad. We are in very unique times with our economy and things can change very quickly. And as said before a bird in hand is worth more then 2 in the bush.

After the federal rate cut to “ 0.25%” cost of money and non-response in the mortgage markets combined to produce consternation among a refinance-hungry public.

On Wednesday morning we had a frantic hour at 4.75%, otherwise mortgage rates remain as they have been for ten days, roughly 5.00% with a origination fee. With that said those rates are for the best credit scores and loan-to-values.

My thoughts are rates are not going lower on a sustained basis, any time soon, unless we have an extraordinary intervention by the Obama administration.

Unfortunately most clients simply do not believe the sentiments above. If I was not a information junky, and did not read 10 to 25 reports daily about the mortgage market, I would not believe this either.

Over the past month, misleading media reports and wishful thinkers of the housing industry have made 4.5% a national imaginary fact. A risky rumor that the National Enquire would be proud of.

This is why 4 percent is so hard! The one and only time that US mortgages reached 4.00%: at the Servicemen's Readjustment Act of 1944 (GI Bill of Rights) enacted, on July 25, 1944. Also we to 4.50% on May 5, 1953, and 4.75% on April 4, 1958, to 5.25% fifteen months later.

Above is the cumulative history of 4% interest rates, which were not in the same economy we are in today. Unfortunately those rates were set so low that the seller of a house to a veteran had to pay 2% to 4% for the veteran’s loan. Not such a great deal.

I have heard countless times, my brother-in-law said he got, xyz percent..!!!! I would imagine Bernie Madoff’s clients may have gotten into trouble believing the grass was greener or simply keeping up with the Jones fables told by their neighbors.

Another sentiment form clients has been, “Call me when we hit bottom” or at “ 4.00%, whichever comes first”

The basic principle behind refinances are: do any deal that works, recapturing costs in a year or so.

I do not know the future, and my magic eight ball is broken. Lock your rate, then don’t watch TV for three weeks. Or talk with your brother-in-law.

But you said rates could crawl lower...? Yup. It took a year for rates to move from 6.25% to the 45-year low 5.25% in June 2003, working off masses of refinances at each intermediate stage. Lasted one month.

Cheers,

Ian r Bennett

Mortgage Banker