Offshoreonly.com - rate environment continues to deteriorate

Hi everyone, some up to the minute information for you all.
The Following chart represents what is happening today & yesterday in the Mortgage backed securities market. The mortgage bonds are being sold off to new lows, causing rates to skyrocket. Anyone who has not locked in will be looking at higher rates for now….as long as inflation is a headline, & while there are no really bad economic headlines as
far as earnings growth, etc., then this will continue to slide. Higher oil prices, inflation, better than expected retail sales (people are spending the stimulus checks), higher import prices, flooding in the midwest that will affect
food prices & ethanol production (gas prices) are all examples of bad news for rates. In years past, rates moved very little each day. For example 6% might be 0 points one day, then .125% point the next. These days the moves are much
more pronounced & happen in the blink of an eye. What cost no points Tuesday, could cost 1 point today. This is due to the volatility in the markets. This means the quotes given by lenders last week are no longer any good. We are watching this throughout the day & hoping for a stop to the carnage. Not too much we can do, except keep everyone informed.
Long term, it is my belief that this will reverse course as the economy starts to contract. Consumers simply cannot continue to spend at the rate they have been, jobs are being lost, gas & food prices are through the roof, & confidence
levels are at 25 year lows. When retail finally slows down, & as long as there are no more major financial collapses, then as we go to the fall & winter, rates should moderate. Short term, it is hard to predict the direction of rates….I would not be surprised by average rates for a 30 year loan to edge to 6.75%.
I am looking to lock loans on dips in this trend if closing is 15 days or more away. We have locked several loans today that needed to close within the next 7-14 days on fears that rates could continue to move higher into next week.

“WASHINGTON (AP) -- Rates on 30-year mortgages jumped to the highest level in nearly eight months, reflecting increased concerns about what the Federal Reserve might do to battle inflation. Freddie Mac, the mortgage company, reported Thursday that 30-year fixed-rate mortgages averaged 6.32 percent this week. That was up sharply from 6.09 percent last week.”
Today’s action has increased this to closer to 6.5%.
According to bankrate.com today----

“Mortgage rates climbed rapidly this week, joining a long list of things that are becoming more expensive.

The benchmark 30-year fixed-rate mortgage rose 26 basis points, to 6.52 percent, according to the Bankrate.com national survey of large lenders. A basis point is
one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.41 discount and origination points. One year ago, the mortgage index was 6.84 percent; four weeks ago, it was 6.19 percent.”
See below-

Continuing to be nauseating

Posted: 6/12/2008 1:01:00 PM EST

As you can see, it's down, down, down, past the psychological barrier at
100-00. reprices for the worse are becoming a near certainty.

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Thursday 6/12/08 ...... Can't Catch A Break

Posted: 6/12/2008 8:56:00 AM EST

In A Word:
Sure we had a bit of a rebound yesterday despite volatility, but check out what
is happening this morning:

The Why:
A very nice one/two punch from economic data this morning in the form of worse than expected inflation and significanty stronger than expected retail sales.
We've now broken through key technical support levels and are tap dancing on a tremendous psychological support level for the 6.0% coupon at 100-00. Ouch!

To Lock or Float?
Most lenders will not have released rates yet, and we should reassess the situation when they do. If the curve is still showing signs of declining, locking is in order. The extent to which stocks react to the economic data will
also be crucial. With the stronger than expected retail sales, combined with the big sell-off in stocks yesterday, combined with our break through the 200 day moving average support floor on MBS, it is possible the downward slide can
continue. This suggests locking. however, if stocks fail to show enough enthusiasm for the numbers as bonds traders have already accounted for, we may recapture some losses which would make floating the way to go. MBS are favored
over treasuries this morning, so at least the tightness of the MBS curve versus the treasury yield curve suggests that traders are more interested in MBS in this big sell off as they represent a higher yield versus treasuries despite
their higher risk.

We will continue to update you on what is happening…if there is a specific scenario that affects you or a client, please call me immediately.

Thanks!

Bernie Neuhaus
Loan Officer
Freedom Mortgage Corporation
Bus: (732)938-2252
Cell: (732)539-5882
Fax: (732)938-2493
[email protected]
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