Wednesday, August 18, 2010

Trading action in the mortgage market is thin and quiet this morning.

There is nothing in the way of meaningful economic news for mortgage investors to chew-on. Recent government data continues to show our economy stuck in limbo, not weak enough to signal a resumption of the recessionary spiral, yet not strong enough to suggest growth and employment prospects will soon brighten considerably.


For the time-being both domestic and global credit market participants are moving massive amounts of capital into the relative safe-haven of dollar denominated assets like Treasury obligations and mortgage-backed securities. The primary objective of these investors is to ultimately sell these assets at a higher price as economic conditions worsen and interest rates move yet lower.

The ever increasing risk here is that the economy does not erode dramatically from current levels. If this scenario were to play out these investors will potentially see the opportunity to sell their growing Treasury and mortgage-backed assets at a yet higher price evaporate over a relatively short period of time. Should such a market condition develop -- the ensuing selling stampede will almost certainly create an environment that sling-shots mortgage interest rates notably higher from current levels. It is worth remembering trees don't grow to the sky -- and mortgage interest rates don't slide lower forever.


I find it tragic to think about the number of borrowers who will likely miss the mortgage financing opportunity of a lifetime waiting for mortgage rates to fall to a level that may never come. It would be one thing if the opportunity was missed because they couldn't qualify for the transaction at today's historically low rates - but the real tragedy occurs if the financing opportunity slips away because of an ego driven desire to own the bragging rights to the lowest mortgage note rate in the neighborhood. I could be a little more understanding if the law required the note rate on your mortgage to be attached in large letters to your mailbox for everyone to see - but missing the chance to "lock-in" the mortgage rate of lifetime to take a shot at maybe scoring a rate that is an eighth- or a quarter-of-a-point lower than currently available is hard to fathom. Sorry -- I know I am preaching to choir - so I'll jump down off of this soapbox and move on.


According to the Mortgage Bankers of America it appears a large number of refinance candidates have decided now might be the perfect time to make their move. During the week ended August 13th the MBA reported requests for refinance loans jumped 17.1% to the highest level in 15 months. Demand for purchase money loans fell 3.4% lower. The contract rate for 30-year fixed-rate mortgages finished the reporting period at 4.6%, up by 2 basis points from the prior week, unchanged from four weeks ago and 56 basis points lower than the year ago mark. Refinance applications accounted for more than 80% of all applications currently pending.