Stimulus Impact on Mortgage Rates

Dear Clients and Partners:

There has been quite a lot of controversy expressed by the public regarding the stimulus package and whom among us it benefits and what precedence is being set that will leave it’s mark for many years ahead. I’ve attempted to concisely highlight and clarify recent announcement made this week that affect all of us who own homes, or are looking to purchase or refinance a home.

If you have any questions on how these announcements affect your situation on purchasing or refinancing a home, please contact me at 714-478-3153, blog me at http://tomdrasler.blogspot.com/ .or visit my website at www.TomDrasler.com.

Regards,

Tom Drasler
DRE # 01775516
HomeQuest Mortgage Corporation
25283 Cabot Road, Suite 108
Laguna Hills, CA 92653
FHA – Conventional – VA
“Serving Southern California since 1996”

Stimulus Package Loan Amounts - The Question of the Day:

Q: When will lenders begin accepting loans under the new 2009 limits?

A: Very soon. FHA just released ML 09-07 today outlining the new loan limits for 2009 under the new American Recovery Act (ARRA). Most lenders are telling us roughly two weeks from now. In the meantime, below is a link to the new Mortgagee Letter. http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-07ml.doc

New FHA/VA Minimum FICO: Most lenders are implementing a new minimum FICO of 620 for all FHA/VA loans including streamlines and no longer accepting submissions that do not meet the new FICO requirement. The typical deadline to close any existing loans with FICOs below 620 is March 5th. **Note: Higher default rates on government loans continue to be an issue so don't be surprised to see further FICO tightening from the investor community.

Events This Week:
GDP Lower
Home Sales Fell
Confidence Dropped
Manufacturing Down
Events Next Week:
Mon 3/2 ISM Manuf. Income
Tues 3/3 Pending Sales
Thur 3/5 Productivity Factory Orders
Fri 3/6 Employment

Supply Concerns Boost Mortgage Rates
All the economic news released during the week indicated that future inflation concerns should be minimal. In addition, the Fed purchased more mortgage-backed securities (MBS) than in any prior week. Despite these favorable events, however, mortgage rates rose slightly during the week. The reason is that concerns about the enormous supply of debt that the government will need to issue outweighed the other factors.
The amount of money the US Treasury will need to borrow to fund government spending seems to rise every week. Two weeks ago, it was the $787 billion Economic Stimulus Plan. Last week, the government announced the $275 billion Financial Stability Plan. This week, the Obama administration proposed a $3.6 trillion budget plan, with an estimated deficit of $1.75 trillion, which is enormous by historical standards. The Treasury will need to issue debt to borrow money to fund all of this. As the government issues more debt, the interest rate offered generally must rise to attract additional investors. Interest rates on similar investments such as MBS then move higher as well to compete for funds from investors.
Reflecting their concerns about an increase in supply, investors required higher interest rates at the large Treasury auctions during the week. The auction results showed that demand from foreign investors remained strong, which was very good news. If foreign investors should ever reduce their purchases of US bonds, then interest rates in the US would be likely to rise.


Also Notable:
January Existing Home sales fell 5% to the lowest level since 1997
Continued Jobless Claims rose above five million to a new record high
The Dow stock index dropped to the lowest level since 1997
The Fed purchased $25 billion in agency MBS during the week ending 2/26

Average 30 yr fixed rate:
Last week:
dn 0.05%
This week:
up 0.14%
Stocks (weekly):
Dow:
7,100
-200
NASDAQ:
1,380
-60


Week Ahead
The important Employment report will come out on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Early estimates are for a loss of over 600K jobs in February. Before the Employment Data, the ISM national manufacturing index and Personal Income will come out on Monday. Pending Home Sales, a leading indicator for the housing market, is scheduled for Tuesday. Productivity will be released on Thursday. Factory Orders, Construction Spending, and the ISM Service index will round out a busy week.