MORTGAGE rates rising

[Fishhead]

For months, long-term mortgage rates fell even as the Federal Reserve was raising short-term interest rates. The Fed's chairman called the decline in long-term rates a "conundrum."

Then, at the end of June, the Fed raised short-term rates for the ninth time in a row, and mortgage rates rose, too. They went up about one-third of a percentage point from late June to early August. It looked like the conundrum had been left in the dust.

This week, on Tuesday, the Fed boosted short-term rates yet again, for the 10th time in a row -- and long-term mortgage rates fell a bit, taking back part of an abrupt gain from late last week. As a result, Bankrate.com's weekly mortgage rate survey shows an increase compared to the previous week, but the rise would have been bigger if the survey had been conducted before Tuesday's Fed meeting, instead of after.

The benchmark 30-year fixed-rate mortgage rose 5 basis points to 5.96 percent, according to the Bankrate.com national survey of large lenders. It was the sixth week in a row in which mortgage rates went up. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.38 discount and origination points. One year ago, the mortgage index was 5.91 percent.

The 15-year fixed-rate mortgage rose 5 basis points to 5.56 percent. The 5/1 hybrid adjustable-rate mortgage rose 11 basis points to 5.62 percent.

This week's rise in rates can be attributed to Friday's release of the July employment report, in which the Labor Department announced that a net 207,000 jobs were created. Economists had been expecting a number closer to 180,000. The average hourly wage went up about 6 cents, to $16.13. That increase was more than economists had expected, too.

Job growth and pay raises invite inflation, just as surely as tulips herald warmer days. When investors catch sight of inflation in the distance, long-term interest rates go up. That's what happened Friday, when the employment report came out. The yield on the 10-year Treasury note jumped eight basis points that day; on Monday, it went up two more basis points. Mortgage rates went up.

On Tuesday, the Fed raised short-term rates, acknowledging that inflationary pressures exist and assuring investors that the central bank is doing its best to keep inflation low. That apparently assuaged investors' worries, as the yield on the 10-year Treasury dropped a basis point Tuesday and another 2 basis points Wednesday morning. Mortgage rates dropped.

Clearly, the unexpectedly strong employment report had a bigger impact on long-term rates than the widely expected Fed rate increase.

If the job market continues to strengthen, expect mortgage rates to keep rising, says Jeff Lyons, general manager of RealEstate.com. He expects home sales to continue at a strong clip, and for the Fed to keep raising short-term rates. "What the long rates do if that plays out, they're probably going to continue to inch up," he says.

Will higher mortgage rates translate into a collapse in home values in overheated markets? Lyons thinks it's more likely that home prices would level off until potential buyers' incomes catch up.

"I'm hoping we'll have this continual glide path of rates going up and everything comes into equilibrium nice and easy," Lyons says.

 

[sherman]

IMO, most people should not even worry about the rates unless they get up over 8%....

 

[NorthernStar]

I am in the mortgage business and long term rates continue to hold in the 5.5%-5.75% range. People with HELOC's are starting to feel the effect. I am not convinced the economy is doing great and therefore rates will remain in the 5's somewhere.

I would actually like to see the economy do good and rates go up. There will never be any refinance business with these rates. A run up to the high sixes would be good.

I bought my first house at 12%. It was no wonder the economy sucked at that time, a 100K loan had a P&I of $1,028 versus 6% a P&I is $599 in todays market. All of that extra money to do other things like buy cars, toys, tv's and gamble and have the same mortgage. Of course the economy is going to be better with low rates. Higher long term rates will slow the economy. There continues to be a dichotomy going on between long term and short term rates. Pretty soon the 5/1 arm will have a higher rate than a 30 year fixed.

Anyone ever want to know what a good rate is on a product, feel free to email me, I will let you know if you are getting a fair price.

 

[TheRightWing]

good point North Star and I'm also in the biz which I see your in Minny also so sharpen that pencil and get back to work!!! I've always said let the rates move up gradually so we can weed all the one hit wonders out of our business and get back to purchases,and refi's will always be there!

 

[NorthernStar]

Who do you for for in town? I work for xxxxxxx xxxxxxxx in Eden Prairie, we are a smaller but growing company with mostly experienced lo's. I use to work for xxxxxxxx xxxxxxxx when I started 6 years ago, they got as large as about 100 lo's. I always put my efforts into long term business like purchase. I think it paid off. I made it to one of Hometown's top five lo's in production by my third year which isn't too bad for a rookie. Fun business and it doesn't take a rocket scientist to do it (and by the way I am one!), I love it. I uses to be an engineer at Control Data and Honeywell and I hated the big business world of never seeing anything get done. Love the freedom of not having to work the 9-5 job. Going golfing on thrusday and friday up north at the Legacy and Deacon's Lodge. I get to play golf at least once a week on Wednesday. Oh and don't forget, floating loans is like legalized gambling during the day hours. I have some theories on that too!!!

 

[TheRightWing]

I have been doing this about 9 years now and have worked for small brokers,large brokers, and I like it right in the middle which now I work for a middle sized broker which has been growing rapidly over the first five years etc. Wish I could hit more new agents but were still pretty steady here with a decent comission plan etc. I knew a few people at Hometown but I think they have left since.

 

[NorthernStar]

The wheels at Hometown fell off fast. The people that bought them (Klein boys) brought a new guy in and he didn't like the guy that started it. He ran him off and he had a bankers mentality. Not good in the mortgage business. He thinks they were suppose to make their money first and didn't understand a 200% of something is better than 100% of nothing. It bugged him that the top loan officers were making more than his bank presidents and he had no control over them. He wanted to figure out how to pay a top producer making $500,000 only $250,000 and keep them around. Wrong!!! He should have been trying to figure out how to pay them $750,000 so he could make more with that added revenue. So everbody left like lemmings running over the cliff.

We have a pretty decent comp plan, with very good health insurance and the owners still produce and understand what the lo's are up against. They take the top producers and their spouses on cruises to reward their efforts. Those things are really fun (although the ones at Hometown because of their size were even better, it was 30 people partying for a week).

We fund 90% of our loans which is nice because you don't have to reveal the SRP and some of the changes coming down the pike indicate that in the future you may be required to reveal that at the time of the lock if you don't fund your loans. That would be a huge change in the business. It sounds liek when our corporate office moves to our new location we are going to get an in-house underwriter which I miss not having.

If you ever want to meet and have lunch some time let me know. I know a few of the other guys locally on the site. Baker (use to be my assistant and is an lo at Pioneer) and I gave MG Man his moniker.

Bonds are showing a little recovery, I wish I was holding something right now. Best one I ever held was a $1,000,000 loan ( it was sweet I made over two points!!). The guy locked and I told him I was out of the office and I would get that locked in right away by calling back to the office. I hung up the phone, put the tee in the ground and played 18. I went back to the office about 4:30, the market was flat and I said the hell with it I will lock it tommorow (back int he faxing days). Next day pricing came out and it was 35 basis points better, that was good enough for me. My best round of golf ever making $3,500. I should go pro!!

 

[TheRightWing]

yeah love it when the bonds rally happens after you hang up the phone!!! You use market alert??

 

[NorthernStar]

I don't use a market alert. Some people swear by those guys like Barry Habib. I alreay know if someone was so good and knowing where the bond market is going that he wouldn't be schlocking his information to a bunch of loan officers at $50 a month. He would be rich by actually investing in the bond market. I guess it would be ok to have to give info to clients so they can make an informed decision in regards to locking. Also someone to blame with your client if they are wrong.

There was a really sharp guy that was in charge of hedging for Hometown. He use to work at US Bank and helped determine there pricing models. We got to be pretty good friends and I learned alot about how pricing is done. I remember one day talking to him about a loan I was floating and the market that morning had just tanked and I was considering taking my lumps and going on. I was asking his advice on the market. He told me that Hometown was sdown about $275,000 so far that day and he was trying to decide if he should just pull the trigger also and cut their losses. He decided to wait. A little later he cam by and said we were down $175,000. Later that day we were down $100,000 and he pulled the trigger. He came by later and was mad because if he had waited we would have been down only $50,000 but being down $100,000 compared to $275,000 was good enough. Those conservative bankers would have shit if they knew they were down $275,000 that morning, he always seemed so calm and cool and he was really good at it. He made way more than he lost and then had no idea how valuable he was. Now Hometown pays a group to hedge their money, it costs alot and they are nothing to brag about.

US Bank's pricing is going to get worse about the 10 or 11th every month for no reason. If the world was flat the 8 or 9th of the month would be the best day to lock. The reason is there is a roll date the investor's use. Around the 10th of the month They roll from the current months bonds to the following months bonds. The pricing is usually about a 1/4 of a discount. I hate whe I forget about the roll date. This guy wanted to start trading large dollars on bonds, we were doing mythical trades and monitoring it. The results were very promising. The the wheels started falling off Hometown and he went to work for GMAC-RFC. We would have been buying a hedge in the $3-5 million dollar range. I would still llike to do it.

I learned alot of other stuff about the loans and the secondary market from this guy. Things about how the loans are sold , cost of pull through, hedging bunch of other stuff.