Salt Lake City Mortgage Market Update for November 20, 2008

Yesterday the minutes from the Fed’s October meeting were released.  The minutes expressed concern over the health of the economy and targets for employment and economic growth were lowered.  The big news though was that after years of being concerned about inflation, the Fed is now saying they are concerned with deflation.  The news shocked the financial markets and directed a huge flow of money into uber-safe Treasury Notes.

We are seeing problems in available credit being offered to consumers right now, and deflation is when prices drop due to decreased in the supply of money and credit.  When this happens typically investors run for fixed instruments like Bonds because the fixed rate of return will buy them more goods and services over time.

The last time this happened was in 2003 when Alan Greenspan mentioned deflation.  Mortgage bonds rallied due to investors seeking safer places for their money, which in turn dramatically dropped mortgage interest rates and set-off a refinance boom.  We could see this again.

Right now Mortgage Bonds are holding their own and interest rates are stable if not getting a little better.  So for now I recommend floating if you are in the process of refinancing or buying a new home.

In the “I said it here first” column, Forbes released an article yesterday saying that the mortgage reforms and new programs put in place by the Federal Government have only helped a fraction of those they said it would when they were selling them to you and I.  I said it a while back, these reforms and programs to help homeowners were more of an election year “Look what I’m doing for you, now vote for me” song and dance than real, helpful policy.  According to Forbes, the FHA Secure program initiated in August of 2007 that was to help more than 400,000 home owners over 3 years has only actually helped 4,000.  That’s far off from the 133,000 per year it was supposed to help. It comes as no surprise that they are now going to spend millions of dollars to figure out what went wrong so they can fix it.

Why is this?  First, In my opinion it’s because we have Congressmen who do not understand the first thing about a mortgage other than having one of their aids write the checks to pay the mortgage for their seven homes, making policies regarding your mortgage.

Second, the very people the FHA Secure program was aimed at helping can’t qualify for it.  This is because rich Congressmen have no idea what Joe Q. Public goes through on a daily basis.  They have no idea what it’s like to have to decide whether to pay the electric bill or buy groceries for your family.  So they make policies that have little relevance to Main Street America, but sound good when they are pandering to their constituents for reelection.  Remember how many Congressmen came out last year pronouncing how they were going to single-handedly clean-up the mortgage industry and save your home?  Yup.  They’ve done a good job.

For Salt Lake City, UT this morning’s mortgage rates are as follows:

30-year fixed: 5.625%

15-year fixed: 5.375%

Jumbo 30-year fixed: 5.75%

5/1 LIBOR ARM 5.75%

FHA 30-year fixed: 6.000%

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