4.5% QUIT WAITING FOR IT!!!!!!

Important note to originators with borrowers in the “waiting” mode: If you have borrowers who are waiting around for the much-touted 4.5% mortgage that the media is slobbering all over, you need to get them locked and closed now. Look at what is being purchased by the Fed - - mostly 5.0%’s and 5.5%’s. To-date, their actions represent about 15% of their targeted purchases, which by now represents enough to get a read on whether it will work. And have rates come down dramatically since they started? No. In fact, they’ve gone the other way (read today’s post on the Freddie Mac survey). Just because the media heard 4.5% as a target doesn’t mean it will necessarily happen anytime soon. Also you have to look at the larger view. As mentioned above the Treasury’s refunding efforts (redeeming bonds with proceeds received from issuing lower-cost debt obligations with ranking equal to or superior to the debt to be redeemed) are now at record levels and will continue – the Obama $900B spending plan will only add to that. This staggering amount of debt supply will need higher yields to attract buyers. The yield curve is steepening already to accommodate supply, and will continue to do so. Higher Treasury yields will put downward pressure on MBS prices, and mortgage rates will climb. Some analysts now think that as the 10-year moves above 3% the Fed will have to step in and buy long-term Treasury debt. Government agencies buying debt from other government agencies. Sound a bit like Madoff? Any way you look at it, the weather vane is pointing to higher rates, not lower ones. If your borrower can be bettered now, better to act now.
Mortgage Market Minute: After the open we are up slightly on worse-than-expected news from the Labor Department about initial jobless claims. The FNMA 4.5% is up +0.06 to 100.66, the 5.0% is up similarly to 101.69, and the 5.5% is up +.03 to 102.28. The stock market opened in negative territory and has clawed its way back to roughly even with yesterday’s close. Yesterday the Treasury Department announced the quarterly refunding would total a sizeable $67 billion. This pushed Treasury yields higher, but mortgage rates roughly held, because cheaper MBS prices again welcomed day trading bargain buyers; to some degree this behavior is keeping mortgage rates in a sideways pattern as the yield curve gets steeper. Trading is light, as it should be, the day before the big jobs report comes out. Friday’s non-farm payroll report (expect -500K after last month’s -524K) is the one that usually moves markets. Initial jobless claims hit all-time high, exceed forecast. The U.S. Department of Labor reported that initial claims for unemployment benefits rose to a whopping 626,000 in the week ending January 31, following an upwardly revised 591,000 claims in the prior week. The expectation was for a figure of 580,000. The four-week moving average for initial claims rose to 582,250, up from 543,250 in the week prior. The figure also exceeds the 16-year high of 589,000 that was set during the week ending December 20. Continuing claims rose to 4.79 million in the week ending January 24, just a tad below the expected 4.80 million, but still above the prior week’s revised 4.77 million. This marks the 10th week that continuing claims have been above the four-million mark. Mortgage rates climb for second week in a row.The average rate on a 30-year fixed rate mortgage rose this week from 5.10% to 5.25%, according to the latest Freddie Mac survey released today, showing that the Fed’s efforts to reduce rates on home loans is less efficacious than hoped. The average 15-year fixed rate mortgage rose from 4.8% to 4.92%. Rates have risen for two consecutive weeks after falling to a more than three-decade low in mid January, when the 30-year fixed rate average hit 4.96%, the lowest on record (data back to 1971). “Investors are growing a little bit nervous about all the Treasury bonds they’re going to be asked to buy to finance the government’s response to the financial crisis,” said Mark Zandi, chief economist of Economy.com. The Senate yesterday unanimously approved a Republican amendment to the stimulus bill they are debating that would temporarily offer homebuyers a tax credit worth $15,000 or 10 percent of a home’s purchase price, whichever is less.Obama administration now promotes limited-size Bad Bank conceptThe Obama administration plans Monday to announce a new “smaller” aid plan for the financial services industry, including a bad bank component. The new plan will be focused on government guarantees and insurance of troubled assets, what's called a "ring fence" concept. The latest round of discussions also appear to have addressed the controversial pricing issues by having the government buy toxic assets below the banks "carrying value," which is basically market value, but not at fire sale levels, the source said. However, it could trigger an accounting problem for the banks, presumably because the institutions will have to report a loss on the transactions. The administration is evaluating a temporary suspension of certain accounting rules in order to address that. On today’s date: February 5…1816: Rossini's Opera "Barber of Seville," premieres in Rome1870: 1st motion picture shown to a theater audience, Philadelphia1922: Reader's Digest magazine 1st published1945: U.S. troops under General Douglas MacArthur enter ManillaThe last word:“Profit in business comes from repeat customers, customers that boast about your project or service, and that bring friends with them.” --W. Edwards Deming