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"Its just another manic Monday"...The Bangles. If you
thought last Monday was wild on the news from Fannie and Freddie, the headlines
that lead us into this week are even crazier. First, Mortgage Bonds are up
sharply, which should lead to much better home loan rates and the great
refinance opportunities that we have been expecting.
Let's begin with more fallout in the financial
sector. Lehman Brothers is done after 158 years, thanks to their exposure
to sub-prime mortgages. And another casualty, that was narrowly avoided
was Merrill Lynch, which is being acquired by Bank of America, again this is all
due to their greed and exposure in the risky mortgage business. Also on
the ropes is insurance giant, AIG, as they try to raise cash quickly to stay
afloat.
So what do all these headlines mean to us in the mortgage
business? It's a time to look for opportunities. Pricing will be at
its best level in some time, homes are at much more attractive prices, terms to
purchase are far more favorable than they have been and the forecast could get
even better. Prices should improve nicely today as money flows out of
Stocks - but there is another story on the Bond side. We know that
Treasury Bonds offer the lowest yield with the lowest risk. Then Mortgage Bonds
offer a higher yield and for an even greater yield, there are Corporate
Bonds. But they do carry higher risk. With all the turmoil in the
financial sector, the risk on Corporate Bonds has increased significantly.
While this will translate to higher yields being offered, the risk on Corporate
Bonds may be greater than the appetite or tolerance of investors. In fact,
many funds will preclude investments in riskier
Bonds.
As fund managers and investors seek alternatives they will
notice that Mortgage Bonds offer a much higher yield than Treasuries with the
same guarantee. This should help Mortgage Bond pricing down the
road...especially, with some potential good news on inflation. The Dollar
has made significant gains against other major currencies, which should help
import prices. The Job market is weak and that should keep wage based
inflation in check. The move in Oil lower has been dramatic. A $52
drop in two months puts Oil at $95...likely on its way to $85. All these
positive inflationary factors spells good news for mortgage
rates.
But this time it will not be as easy, as credit and
appraised values will represent more of a challenge. That said, there are
a lot of deals to be had. Brush up on how to improve credit scores and do
as much research as possible on valuations for potential refi clients ahead of
time.
My advisors say: "Remind your clients that these drops in
rates don't last forever and should be taken advantage of if they make sense.
Greed kills." Here's the
reminder. | 
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