Fed Chair Comments start slight bond rally!

In Ben Bernanke’s testimony today before Congress he painted a grim picture on the current economy and has given every inclination that the Fed is poised to deal with the recession fully knowing that all that they do to fix the economy now will mean that they will have to reverse once the economy is going to stop the inflation that is currently happening.

So what does that mean to you? Short term rates are going to go down further. Your credit card rates and home equity rates should come down some for the next 6-12 months. However, once the Fed sees the economy start to recover and they begin their inflationary fight, those rates will go up and they will go up quickly. Long term rates in theory should come down, however if you review Mr. Bernanke’s testimony you will see that even when pressed on why the disparity between short and long term rates he was elusive and evasive in his reply and hung his hat on not commenting on short term price fluctuations in the markets. So what does that mean? Well what it says is that he is aware that his words carry huge weight with the money managers of the world and if he was to voice an opinion it could have a tremendous effect on the movement of those markets.

So when are long term rates coming down? If you follow the money, always the answer in solving any problem, the major money managers have been building their cash positions. With so much uncertainty in the markets, percentage of cash has increased in almost all investment funds. Once the money managers have a clear idea of the direction of the Fed, you will see them begin to take their positions and use up that cash. Here is the simple truth, if they have cash and are being paid money market rates for that cash, if the Fed lowers rates, then they will earn less on that cash. At some point they will have to move that cash into positions that will guarantee a return for them and the fixed equity market, i.e. bonds and mortgage backed securities will probably be the choice for that. They can lock in their return and know that when the Fed changes direction either later this year or early next year that they will be able to unload those investments and get into more lucrative opportunities. Therefore, it is my belief that we are going to see in the near future, next 30-60 days long term rates come back down below 6 % and we may even see rates close to the 5.5% level. The period of time that they will be there will be brief, could be as short at 24 hours and as long as a month, but once they hit the bottom, they will bounce hard back and we will be hard pressed to see those rates for a long time.

My recommendation to any borrower is get in touch with your lender of choice and be prepared to take advantage of these rates when they come. It may be YEARS before we see them again.

For questions or comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

Gentlemen Start Your Engines

Fasten your seatbelts mortgage professionals. This week President Bush will sign into effect his economic stimulus package. The stimulus package contains several features designed to improve the troubled housing market.

It would increase the Federal Housing Administration's loan limits from $362,000 to $729,750 and those of two federally sponsored entities, Fannie Mae and Freddie Mac, from $417,000 to $729,750. The FHA insures private loans made by FHA-approved lenders, while the other two buy and sell loans in the secondary market.

The measure would also enable the FHA to become more active in dealing with the direct impact of the housing crisis, permitting more borrowers facing defaults to refinance subprime loans through the federal agency.

So what does this mean to the mortgage industry?

1) Every loan that was a “Jumbo” loan that was originated in the last 4 years in all probability will be now a conforming conventional loan. That could mean a drop of up to 1.25% in the interest rate for borrowers. On $600,000 that is a savings of $489 a month. You can bet those borrowers will be clamoring for the chance to save money. Especially when the package may call for the change in the loan limits to only last for 12 months.

2) All those borrowers who have conventional loans that are over the current FHA loan limits will get a chance to refinance their first and second mortgages up to 95% of the value of their house depending upon the new FHA loan limit in their geographic area. These are the people that Fannie and Freddie have turned their backs on with the current mortgage crisis. As delinquencies rose credit standards have tightened.

3) Pipelines will swell and people will be hired to handle the increase in volumes.

4) Real Estate will recover in the following years as people have had a chance to re-adjust their budgets and dig out of the mess that was created.

For all those out there that would like to comment on this or who have one of those Jumbo loans, please contact Chris Scheer at 314.223.9824 or cscheer@cornerstonestl.com.

Latest Update on MHDC issue

The 2008A bond issue is being priced today and tomorrow, so we should open for reservation on Monday February 11, 2008. The rates will not be determined until later this week. I will send another email out later this week stating the new rates. This bond issue is 50 million dollars and only 5 million will be for NON CAP loans but we do have the flexibility to do all CAP loans in this issue. I will warn you that the rate will not be very attractive due to the current market conditions.


If you are a first time homebuyer or know anyone who is this is a great chance to get help on your downpayment and closing costs. For more information on MHDC go to www.mhdc.com.

For comments or questions please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.