by Brian Brady

The MBS market has improved dramatically since the new FHFA seized Fannie Mae and Freddie Mac. An implicit government backing of mortgage bonds became explicit with that single event. The rate difference, or spread as we call it, between gov?t bonds and mortgage bonds, has narrowed from abnormally high margins. This means that mortgage rates dropped as much as .375% since the gov?t takeover. Alas, I think that party is a bit short-lived. The exuberance appears to be a bit irrational and the reality of impending bank failures has worried the MBS market again. Short-term, I?m advising clients to lock-in these low rates and be done with it.

For Pasadena home buyers who are in escrow with a 30 day time period until closing, I?m advising that they lock as well. Rates may spike up and come back down ,to these below 6% levels, but I don?t see a great opportunity for the medium-term to improve upon today?s already low rates.

Longer-term, mortgage applicants may find mortgage rates higher than they are today. The realization that SOMEONE has to pay for this bailout will hit everyone, after the election, and treasury bond yields should rise, pushing the MBS yields, and mortgage rates, higher as well. Not a rosy picture.

So, lock those loans at application. While the current 30-year fixed rate loan offering, with 1% origination fee, is 5.75%, for a conforming loan (6.02% apr), the risk of those rates popping up to the 6% level far outweighs the reward of holding out for 5.625%.

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