What was I thinking?

The wonderful thing about interest rates is that you never can truly predict what direction they are heading in. For those of you that read my last post about rates going down, you at this point think I am a complete fool! At some level you might be right; however the same pressures that existed when I wrote that article are still there. They just have had some short term relief and the usual unpredictable influences that occur from time to time affect them. Let’s talk about where we were, where we went and where we are now?

Two weeks ago today our 30 year fixed on a conventional loan was about 6.75%. It was then that I started the article on rates dropping. Throughout that week the rates started to fall, so much that on Friday morning of that week I locked in a purchase at 6.125% on a 30 year loan. Around 1:00 that day it was announced that the Fed was stepping in and taking over Indy Mac bank. http://www.latimes.com/business/la-fi-indymac12-2008jul12,0,6071779.story At that point our rates jumped up to 6.375%.

The following Monday the market remained calm, and rates did not move. Then on Tuesday oil prices started to drop and over the next two days oil fell over $10 a barrel. All of a sudden Wall Street showed improvement in stock prices and the 6 week slide was halted. That meant that money was flowing back into stocks and out of bonds. Remember your economic lessons of previous posts, when the demand goes down the price goes down. On bonds when the price goes down the yield (interest rate) goes up. So by Friday of last week we were back to 6.75% on a 30 year loan.

As we start the week, we have oil starting to climb again and one of our two Presidential Candidates trying to move troops to Afghanistan to fight the War on Terror. As long as we are fighting Wars, we are going to have challenges controlling our markets. These wars are costing us BILLIONS and we are paying for that with borrowed money. Sooner or later that will have a negative effect on our economy and we will see rates come down.

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

Goodbye Countrywide and Goodbye to their step brother Indy Mac.

The Federal Reserve stepped in and took over Indy Mac bank on Friday.

http://www.latimes.com/business/la-fi-indymac12-2008jul12,0,6071779.story

This comes as no shock to members of the mortgage industry as recently Indy Mac announced it was ceasing its retail mortgage operations.

http://theimbreport.com/?p=161

So why do I call Indy Mac Countrywide’s step brother? For years Indy Mac mirrored all the lending programs that Countrywide created, almost to the point where unless you looked at the login page when you were visiting their site, you could not tell the 2 companies apart. There were times when Countrywide would announce a change in a program or guideline and within hours the same change would be announced at Indy Mac. From an originators standpoint, it was comical how the two companies mirrored each other.

When Countrywide was hammered last year and the Fed stepped in to rescue them (see previous posts) Indy Mac started to take on a life of their own. They for the first time were the first of the two companies to change programs and products reducing their exposure and tightening their lending practices. It was because of these efforts that they managed to last as long as they did. If it were not for comments made by Senator Schumer http://blownmortgage.com/2008/07/08/indymac-bank-run-caused-by-senator-comments/ they may have managed to right their ship and avoid the Fed taking them over.

So why does the Fed rescue one company and take over another? Stock penetration and price. If Indy Mac would have had the numbers of shareholders that Countrywide had world wide or even Bear Stearns, they would have been rescued as opposed to taken over.

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