China Investment Corp. to buy U.S. mortgage backed securities

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China said to be buying U.S. mortgages

The China Investment Corp. is set to invest up to $2 billion in mortgage-backed securities because it considers the housing market set for a recovery.

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Last Updated: August 17, 2009: 9:17 AM ET

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HONG KONG (Reuters) -- China's $200 billion sovereign wealth fund, which suffered big paper losses on stakes in Morgan Stanley (MS, Fortune 500) and Blackstone (BX), is set to invest up to $2 billion in U.S. mortgages as it eyes a property market recovery, two people with direct knowledge of the matter said Monday.

China Investment Corp. (CIC) plans to invest soon in U.S. taxpayer subsidized investment funds of toxic mortgage-backed securities, which it sees as a safer bet than buying into the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF).

Under the Public-Private Investment Plan (PPIP) launched earlier this year, the U.S. government plans to seed a number of public-private investment funds that would combine taxpayer money with private capital to buy as much as $40 billion in toxic securities from banks.

Compared with TALF, the new and smaller PPIP program focuses on safer toxic securities, which must have triple-A ratings from at least two agencies, and are debts guaranteed by the Federal Deposit Insurance Corporation (FDIC), sources explained.

"In this case, CIC feels safer to invest and the safer it feels, the more confident it will naturally feel about its investments, as well as in the prospects for the U.S. economy," said one of the sources.

The move comes after the United States and China ended their first annual Strategic and Economic Dialogue late last month, agreeing to lead the global economy out of recession, with China seeking safer investments in the world's leading economy.

"The Chinese government is always trying to seek a more ideal way to invest in U.S. assets rather than purely buying U.S. government bonds all the time," said the source.

"Some might think $2 billion for a $200 billion sovereign fund is not big money, but it can be regarded as an innovative and positive option for Chinese investment."

CIC is in talks with nine designated PPIP managers, which include Alliance Bernstein LP, with sub-advisers Greenfield Partners LLC and Rialto Capital Management LLC; Angelo Gordon and Co. LP, with GE Capital Real Estate; BlackRock Inc.; Invesco Ltd.; Marathon Asset Management LP; Oaktree Capital Management LP; RLJ Western Asset Management LP; Trust Company of the West; and Wellington Management Co. LLP, said the sources.

Choices to be made: CIC is expected to decide this month which of the nine designated PPIP managers it will mandate for its investments in financial products such as mortgage-backed securities (MBS) under the PPIP scheme, said the sources.

The fund is likely to select several, though not all, of the firms, said the sources, who have direct knowledge of the matter but asked not to be identified as the talks are confidential. CIC cannot invest directly in the PPIP.

CIC declined to comment.

Early this year, some U.S. asset managers approached CIC to invest in their funds focused on the TALF, the sources said, but the Chinese declined given the uncertain outlook at the time for U.S. economic recovery.

They noted, however, that these TALF-focused funds performed well in the second quarter as global markets perked up following the long financial crisis triggered by the U.S. property market.

CIC, established by China's Communist government in late 2007, is keen to participate in the PPIP as it expects the U.S. property market to recover gradually late this year, said the sources.

The U.S. Treasury has been informed that the nine designated PPIP managers are in talks to receive CIC money, and supports bringing foreign investors like CIC into the PPIP program, said the sources.

In June, Reuters reported Asia-Pacific sovereign wealth funds, including CIC and Singapore's Temasek, which have been rocked by soured bets on western financial companies, are diversifying into the riskier arena of distressed asset investments.

CIC's $200 billion fund is part of China's roughly $2 trillion of foreign exchange reserves, and the majority of its reserves are in U.S. government bonds.

Credited to: www.CNNMoney.com

Choosing the Best Mortgage Now

From the desk of:

Rich Storey

Mortgage Advisor

615-260-8028

Choosing the best mortgage now

Fixed? Adjustable? Terms? Here how to make the decision.

By Jeanne Sahadi, CNNMoney.com senior writer

April 27 2007: 3:39 PM EDT

NEW YORK (CNNMoney.com) -- Mortgage rates have stayed relatively low, but they are still considerably above rock-bottom levels reached two years ago, and many worry that they will ultimately head higher.

Still, that's not the only consideration when choosing a mortgage. Here's how to make the decision.

15-year versus 30-year debate

Current Mortgage Rates

Type	Overnight avgs

30 yr fixed mtg	5.44%
15 yr fixed mtg	4.83%
30 yr fixed jumbo mtg	6.43%
5/1 ARM	4.45%
5/1 jumbo ARM	5.25%
Find personalized rates:

HOME AFFORDABILITY See where you max out Gross annual income: $ Downpayment amount: $ Monthly debt: (eg. student loan, credit card payments) $ Mortgage rate: % Annual property taxes: $ Annual homeowner insurance: $

The first question you should ask is, "How much can I afford to pay on a monthly basis?"

Keep in mind, your mortgage payment is only part of what you'll pay to live in your home. You also should budget for furniture, your house's upkeep and the general expenses of life (like, say, food).

A 30-year mortgage will have a lower monthly payment and a higher interest rate than a 15-year mortgage. So you'll have a smaller monthly obligation but you'll pay more for your house over time because you're paying it off with interest for a longer period.

Conversely, a 15-year mortgage will have a higher monthly payment and a lower interest rate so you'll pay less for your house because you're paying it off in a shorter period.

"For most home buyers, especially first-time buyers, taking a 15-year (or 20-year) mortgage is out of the question," said Keith Gumbinger, vice president for mortgage tracker HSH Associates. The higher monthly payments are often too much to handle for these types of buyers.

But for home buyers with sufficient income and a desire to be mortgage-free in a short time, a 15-year loan might be a good bet.

Fixed versus adjustable-rate conundrum

The second question you should ask is, "How long will you be in the house?" You probably can't answer with absolute certainty, but you can play the odds.

Say, for example, you're single and buying a small condo but you can easily envision yourself married; or you've just started a family and plan to expand it at some point. Chances are good you'll want to trade up to a new home in five to seven years. On the other hand, maybe you've had your family and want to settle into a place with a good school system, which your kids will be using for the next 12 years.

Whatever the answer, it will help you decide whether it makes sense to get a fixed-rate or an adjustable-rate mortgage (ARM).

A fixed-rate mortgage locks in a rate for the length of your loan.

ARMs, meanwhile, are short-term fixed-rate loans: After the fixed rate term is up, the rate adjusts at regular intervals in accordance with current interest rate conditions at that time. A 5/1 ARM, for example, has a fixed rate for five years and then adjusts every year for the next 25 years. (ARMs typically run on a 30-year schedule.)

The length of the fixed-rate term on an ARM typically can range anywhere from one month to 10 years. The longer the rate is fixed, the higher the interest rate you'll get. But generally speaking -- and there have been exceptions in the past -- ARMs will cost you less in the short-term. With the ARM, both your monthly payments and interest rates should be lower than either a fixed rate 15-year or 30-year mortgage.

The risk with an ARM is that when interest rates rise, you could end up paying much more than you bargained for. "You're subject to the vagaries of the market," Gumbinger said. That's why in today's low-rate environment, he noted, "You want to maximize the fixed-rate picture to match your time frame."

If you know you'll be in a home for 12 years or more, a 30-year fixed rate mortgage might work better for you than, say, a 5/1 ARM, where you fix a rate for five years and then it adjusts every year after that. But if you think you won't be in the home longer than five or six years, a 5/1 ARM might make more sense.

A dollars-and-sense exercise

Say you need a $200,000 loan to buy a home and you can get the current average rates for a 30-year fixed, a 15-year fixed, or a 5/1 adjustable rate mortgage.

If the 30-year fixed rate mortgage is at 6.62 percent - a level it was at just a few months ago - your monthly payment would be $1,280. The interest you pay over the life of your loan would total $260,786.

With a 15-year fixed rate at 5.94 percent, your monthly payment would be $1,681. The interest you pay over the life of your loan would total $102,623, or about $158,163 less than the 30-year fixed.

With a 5/1 ARM at 4.20 percent, your monthly payment would be $978 for the first five years. The total interest you pay over the life of the loan if you stayed in your home past five years is anyone's guess because your rate would then adjust annually. But if you move after five years, that won't be an issue.

Credited to: www.CNNMoney.com

From the desk of:

Rich Storey
Mortgage Advisor
615-260-8028


Tightening Credit Becomes Bernanke Bind in Bond Purchase Unwind
By Yalman Onaran

July 24 (Bloomberg) -- Now that the U.S. economy shows tentative signs of recovery, James Bullard, president of the Federal Reserve Bank of St. Louis, wants the Fed to adopt a plan for taming the inflation he expects may follow the end of the recession. Unless the central bank puts a strategy in place and presents it to the public, inflation expectations may run rampant, Bullard says.

He’s pessimistic such a plan will be forthcoming. “I think I’m an army of one on that,” Bullard said in an interview after a speech in Philadelphia on June 30.

The Fed always faces a hard choice as recessions run their course (this one began in December 2007): It can keep pushing to revive growth and avoid deflation -- an extended drop in prices like the one that devastated the U.S. economy in the early 1930s -- or it can take aim at inflation and risk strangling the recovery before it takes hold.

The unprecedented steps the central bank has taken to battle the credit crunch, especially its purchases of mortgage- backed securities, pose an inflation risk that’s trickier than in previous recessions, says Joseph Mason, a banking professor at Louisiana State University in Baton Rouge, Louisiana.

Don’t count on the Fed to get it right, says economist Allan Meltzer of Carnegie Mellon University in Pittsburgh. The central bank has often lacked the resolve to pursue unpopular policies to keep prices in check, says Meltzer, who’s the author of two volumes chronicling the Fed from 1913 to 1986.

“The Fed throughout its history has carried out a strategy of taking care of today’s problems, not looking to the future,” Meltzer says.

Great Depression

So far, inflation has shown no signs of heating up -- nor has deflation reared its head. The U.S. core inflation rate, which excludes food and energy costs, fell to 1.7 percent as of June from 2.4 percent at the beginning of the recession. In the Great Depression, consumer prices fell for more than three years, at an annual pace as high as 10 percent.

Federal Reserve Chairman Ben S. Bernanke, who has published academic research on the Depression’s causes, is wary. He said in June that the Fed continues to watch for deflation, and he testified to Congress this week that the economy still needs support to recover, especially in light of rising unemployment. The central bank has the tools it needs to reverse its monetary easing when it’s time to fight inflation, he said.

Among the Fed governors and reserve bank presidents who oversee monetary policy, most see slow growth and deflation as a bigger risk than inflation, based on speeches they have delivered in recent months.

Fed Balance Sheet

Bullard, among the minority worrying more about inflation, says the real risk is simmering on the central bank’s balance sheet. By making loans and buying securities to unfreeze the credit markets, the Fed has doubled its balance sheet assets to $2 trillion in the past year.

About half of that expansion came through short-term lending to financial institutions. The Fed is scaling back those facilities. It’s the rest of the balance sheet growth that concerns Bullard -- especially $661 billion of MBSs acquired to push down rates on home loans. The Fed has said it may buy as much as $589 billion more.

“I call those the politically toxic assets,” says Benn Steil, a senior fellow at the Council on Foreign Relations in New York. Selling those bonds would boost home buyers’ borrowing costs and stall the recovery of the housing market.

Lender Reserves

Traditionally, the work of a central banker has been simpler: lower your benchmark rate to counter a recession and raise it when the economy recovers to prevent inflation. The current crisis shows the limits of that approach. Even after the U.S. federal funds rate was cut to zero late last year, the economic slide worsened. U.S. gross domestic product fell at a 5.5 percent annual rate in the first quarter of 2009. Bernanke responded with the loans and the purchases of MBSs, an approach known as quantitative easing.

One way to counteract the easy credit the Fed has created might be to raise the interest rate on the reserves that lenders hold at the central bank, Bernanke says. U.S. financial institutions had $781 billion of such reserves as of this week, up from just $32 billion in September 2008. The central bank got authority in October to pay interest on those funds. It has been paying 0.25 percent and can change the rate at any time.

Banks will withdraw this money when they feel it’s safe and profitable to make loans. By paying higher interest, the Fed would make it less attractive for banks to pull that money out and pump it into the economy.

Untested

There’s little precedent for managing the money supply with interest on reserves, so it may be impossible to figure out where to set the rates. “We don’t know what a percentage point change in the interest rate on reserves will do to lending by banks,” says Mason at Louisiana State.

Meltzer is skeptical that Fed policy makers will act, even if they figure out how. In the 1960s and 1970s when inflation was rising, the Fed set out goals to fight it at least four times only to back down under political pressure. Paul Volcker, who became Fed chairman in 1979, was the exception. He ignored politicians and pushed the benchmark fed funds rate as high as 20 percent in the early 1980s.

Central bankers tilt toward stimulating growth, Meltzer says, partly because Depression-era deflation is imprinted on their minds, while periods of deflation prior to the 1930s that didn’t wreak havoc are forgotten.

The perception that a central bank won’t move against rising prices can actually contribute to inflation, says William Silber, a professor at New York University. When the public expects inflation, it’s easier for retailers to raise prices and for workers to demand wage increases, he says.

Stagflation

Silber is writing a book about Volcker’s fight against inflation in the 1970s, when prices rose even during recessions. The public’s view that there was a lack of will to fight inflation helped cause this phenomenon, known as stagflation.

This is one reason Bullard wants the Fed to actually publish a plan for tackling inflation and not just draft it for internal purposes. To contain inflation, the battle often needs to begin before it’s visible -- never a politically pleasant task. Acting now promises to be especially unpalatable, with unemployment at 9.5 percent in June and home foreclosures coming at a record pace in the first half of this year.

Credited to: www.Bloomberg.com

Bernanke sends mortgage rates lower
Rates continue 'yo-yoing,' but comments from Fed chairman add downward pressure. 30-year dips to 5.55%.

NEW YORK (CNNMoney.com) -- Home mortgage rates ticked lower after Federal Reserve Chairman Ben Bernanke said the central bank will continue to keep interest rates low.

The average 30-year fixed mortgage slipped to 5.55% from 5.58% the week prior, and the 15-year fixed fell to 4.89% from 4.93%, according to the weekly national survey from Bankrate.com.
Recently rates have been "yo-yoing as corporate earnings announcements and economic data toy with investor sentiment," the report noted.

On Wednesday Bernanke gave his semi-annual congressional testimony on the state of the economy, saying the central bank will "likely keep interest rates low for an extended period of time," the Bankrate report noted.

A separate Thursday report showed sales of existing homes disappointed again in June, rising just 3.6%.

Current mortgage rates remain much lower than last year's levels, when the average 30-year fixed was 6.77%, according to Bankrate.com.

At the current rate of 5.55%, the monthly payment on a $200,000 mortgage would be $1,141.86, or about $158 less than the monthly payment at last year's rate.

Adjustable-rate mortgages: ARMs "continue to post mixed results," the report said, with the average 1-year ARM rising to 5.23% from 5.22%, and the 5-year ARM falling to 4.93% from 4.98%.

Credited to: http://www.cnnmoney.com/

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028

Mortgage applications at 7-month low
Group says requests for home loans fell 18.9% last week.

NEW YORK (Reuters) -- Mortgage applications plunged to a seven-month low last week as demand for home refinancing loans tumbled 30%, data from an industry group showed Wednesday.

The drop does not bode well for the hard-hit U.S. housing market, which has been showing some signs of stabilization, with sales rising and home price declines moderating in many regions of the country.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended June 26 decreased 18.9% to 444.8, the lowest reading since the week ended Nov. 21, 2008.

Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, said mortgage rates are just one factor driving potential borrowers.

"Rising unemployment, concerns about job security, potential buyers' inability to sell their existing homes and problems with appraisals coming in too low are all weighing on demand," he said.

"The government needs to take more aggressive action to bring mortgage rates back down to below 5% as that seems to be a key level for the market," he said.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.34%, down 0.10 percentage point from the previous week, but significantly higher than the all-time low of 4.61% set in the week ended March 27. The survey has been conducted weekly since 1990.

Mortgage rates remained above 5% for a fifth straight week, but were well below year-ago levels of 6.33%.

Thirty-year mortgage rates had mostly been on a downward trend since the Federal Reserve unveiled its plan to buy mortgage-backed debt in late November. But the Fed met resistance in the bond market in late May and early June.

Treasury yields, which act as a benchmark for mortgage rates, rose sharply during that period. Treasury yields, however, have come down recently, allowing rates to fall.
The MBA's seasonally adjusted purchase index fell 4.5% to 267.7.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 9.2%.

Refining activity sinks:

The mortgage bankers' seasonally adjusted index of refinancing applications decreased 30% to 1,482.2, also the lowest level since the week ended Nov. 21, 2008.
Refinancings accounted for 46.4% of applications, down from 54% the previous week and significantly lower than the peak of 85.3% in the week ended Jan. 9.

The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world. Economists contend that the economy might not emerge from its slump unless the housing market stabilizes.

The shares adjustable-rate mortgage activity increased to 4.3% in the latest week, up from 4.1% the previous week.

Fixed 15-year mortgage rates averaged 4.81%, down from 4.93% the previous week. Rates on one-year ARMs decreased to 6.52% from 6.54%.

Credited to: http://www.cnnmoney.com/

From the desk of:

Rich Storey
Mortgage Advisor
615-260-8028

Best way to find a home loan
Mortgage shopping has never been more confusing. The secret is knowing whom to talk to, and when.

(Money Magazine) -- When the easy money was flowing, you could get a great deal on a mortgage from just about anyone. But in today's credit-challenged world, all the avenues for finding a mortgage come with their own set of problems.

Many banks have tightened lending standards and scaled back offerings. Some banks are no longer working with mortgage brokers, who are under fire for pushing bad loans during the boom.

And while online lending sites hold the promise of one-stop shopping, some have developed a reputation for playing bait-and-switch on rates and not fully disclosing fees.

All this adds up to a major shopping hassle. If you want to get the best rate, you'll need to tap at least two of the sources below.

Scour the Web
Shopping for a mortgage online has come a long way from the days of one-size-fits-all rate listings. At some sites, including Bankrate.com, MortgageMarvel.com, and Zillow.com, you can now shop anonymously and get accurate rates. Keep in mind that all these sites act as referral services, so eventually you'll have to close the deal with a bank or mortgage broker.

Best for: If you know what kind of loan you're looking for, the Web should be your starting point; getting a handle on the current rates and fees will help you know whether you're getting a good rate when you sit down with a broker or bank officer later on.

If you're not sure what kind of mortgage you need, however, you'll want to seek counsel from a real person right away.

What to watch out for: Sites that ask for your Social Security number and address upfront. They might pull your credit report, which could hurt your score if you don't end up getting a mortgage.
Also make sure that all the fees are clearly disclosed on a site's rate quote. Otherwise you may get a sorry surprise when you receive the paperwork from a lender.

How to get the best deal: When inputting data into the online mortgage tool, don't guesstimate your income, your credit score, or other key stats. If you submit incorrect information, you probably won't get the rate that you've been quoted.

Go directly to a bank
At the height of the credit crisis, there seemed to be little point in asking a bank for a mortgage. But banks are lending these days, albeit with some caution.

Best for: Borrowers who are looking for a conforming loan (less than $417,000 in most areas), since some lenders have stopped underwriting jumbos. Also, if you're refinancing, call your current lender first: To keep you as a customer, it may be willing to undercut the competition.
What to watch out for: Novice loan officers. "In the heyday, underwriting was a matter of pushing a button," says Steve Curnutte, a former mortgage broker. "Now you have to know what you're doing." To prevent your financing plan from fizzling out midway, ask to work with a loan officer who has been in the business for five-plus years, or since before the credit boom took off.

How to get the best deal: Shop locally. A loan officer who's familiar with the housing stock and the players in your area may have greater latitude to offer you a lower rate than one based elsewhere. Try the local branches of big-name banks as well as community banks and credit unions, which may be using the crisis as an opportunity to snag business from their larger brethren.

Call on a broker
Mortgage brokers doled out plenty of bad loans during the boom. But a good broker can give you more hand-holding than you'll get online and will scour the market more thoroughly than you're likely to do on your own.

Mortgage brokers have access to a wide array of products (conventional/unconventional) & will also typically have access to highly aggressive interest rates.

When it makes sense: If you're in the market for a jumbo mortgage or financing for investment property, or you just don't fit the conforming mold, a broker will identify lenders who underwrite unconventional loans. "The more exotic your needs, the harder it is to find a loan right now," says Keith Gumbinger, vice president of mortgage information site HSH. "Finding that little niche is what a broker does best."

What to watch out for: Fees. Most brokers make money on the difference between the rate you could get and the rate you actually pay, and they aren't required to disclose their cut. One way around it: Work with a fee-only broker (you can find one in your area at upfrontmortgagebrokers.org).

How to get the best deal: Obtain rate and fee info from banks and Web sites before you talk to a broker. After all, a good broker can more than make up for his cost if he finds you a better rate than you'd get on your own. But if he can't, there are plenty of others who would love to have your business.

Credited to: http://www.cnnmoney.com/

Beware of free credit reports....

From the desk of:

Rich Storey

Mortgage Advisor

615-260-8028

Free credit report ads: Stop the music!

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Posted by Ismat Sarah Mangla

June 26, 2009 12:24 pm

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The new credit card reform law is full of good consumer protections, but here’s one you might not know about: It’s going to require companies like FreeCreditReport.com (owned by credit bureau Experian) to clearly state that their services aren’t actually free.

Who doesn’t love those FreeCreditReport.com commercials? You know, the ones featuring the lovable 20-something singing about his credit troubles in a variety of musical genres? In the first, he’s dressed in pirate gear and crooning about how he has to work in a seafood restaurant because his identity was stolen (it works best if you don’t think too hard about it). My favorite jingle is the one that has him singing about how he married his dream girl, only to find out that her credit was bad, too. You can see all the commercials here:

The only problem, of course, is that FreeCreditReport.com is not really free. In order to get your report through the site, you must sign up for a trial membership in the site’s “Triple Advantage Credit Monitoring” program. If you don’t cancel your membership within a 7-day trial period, you’re billed $14.95 a month. And plenty of people have fallen for the site’s promise without realizing they were going to be billed. The Better Business Bureau has received 9,865 complaints about the site in the last 36 months, with some complainants saying that they kept being billed even after canceling membership.

But now, thanks to the Credit Card Accountability, Responsibility and Disclosure Act, companies touting free credit report services must disclose in their ads that consumers are entitled by law to receive a free credit report from each of the three credit bureaus, and that the official web site to obtain them is AnnualCreditReport.com. And radio and TV ads must clearly state, in both the audio and the video, “This is not the free credit report provided for by federal law.”

That’s good news, since the web-only public service commercials the Federal Trade Commission created in response to FreeCreditReport.com’s ads need all the help they can get.

Credited to: www.CNNMoney.com

Mortgage Rates Climb

From the desk of:

Rich Storey

Mortgage Advisor

615-260-8028

Mortgage rates climb

Treasury yields on a tear help pull rates higher; 30-year fixed mortgage jumps to 5.95%.

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By Julianne Pepitone, CNNMoney.com contributing writer

Last Updated: June 11, 2009: 3:03 PM ET

MORTGAGE ESTIMATOR

Estimate monthly housing payments

Price of home:	$
Downpayment:	$
Interest rate:		%
Yearly property taxes:	$
Yearly homeowner's insurance:	$

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Tough workouts

Lenders all say they want to help mortgage borrowers stay in their homes. But when homeowners contact lenders in search of mortgage modifications, they often find getting help very difficult. Here are some stories from readers who struggled to find solutions.

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Current Mortgage Rates

Type	Overnight avgs

30 yr fixed mtg	5.67%
15 yr fixed mtg	5.21%
30 yr fixed jumbo mtg	6.66%
5/1 ARM	4.89%
5/1 jumbo ARM	5.45%
Find personalized rates:

NEW YORK (CNNMoney.com) -- Home mortgage rates jumped in the most recent week, pulled higher by skyrocketing Treasury yields.

The average 30-year fixed rate soared to 5.95% from 5.45% last week, according to a weekly national survey from Bankrate.com.

The 30-year rate is often influenced by the benchmark 10-year bond's yield, which has increased steadily to hover around 4% recently. The yield was 2% just six months ago. Investors worry that this has re-ignited inflation fears and threatens the potential for economic recovery.

In an effort to cap mortgage rates, the Federal Reserve in March revealed a campaign to buy back $300 billion in Treasurys in hopes that it will spark demand and keep yields -- and therefore, mortgage rates -- in check.

Mortgage rates fell as refinancings abounded. But those benefits seem to have worn off, as rates have been on a tear in recent weeks.

Although mortgage rates continue to rise, they remain much lower than last year, when the average 30-year fixed mortgage rate was 6.48%.

Adjustable-rate mortgages: Those rising rates have made it difficult for many homeowners to refinance, but ARMs are an option, the Bankrate report noted.

Adjustable-rate mortgages were higher last week, with the average 1-year ARM rising to 5.16% and the 5-year ARM jumping to 5.49%.

"Bankers say ARMs got a bad rap in the mortgage debacle," the report continued, adding that the riskiest loans in the housing bubble --"subprime, low down payment, interest-only, negative amortizing and stated income" -- tended to be adjustable-rate mortgages.

But the meltdown happened "because those loan features were layered on top of ARMs," the report said, meaning that it was not the adjustable rates that caused people to default. Rather, home buyers put no money down and "exaggerated their earnings when they applied for stated-income loans."

A few months ago, only about 1% of mortgage applications were for ARMs. Last week, it was 3.4%, the report added.

Other rates: The average 15-year fixed rate mortgage jumped to 5.37% from 5.06% the week prior.

The average jumbo 30-year fixed rate ticked up to 6.96% from 6.68%. Loans are considered "jumbo" when they are too large to be purchased or guaranteed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500). They carry higher rates than smaller "conforming" loans, which do have guarantees.

Credited to: www.CNNMoney.com

Mortgage Rates and the 10 Year Treasury Bond

From the desk of:

Rich Storey
Mortgage Advisor
615-260.8028

10-year yield at 4% - snarls recovery
Treasury yields are soaring. Mortgage rates are following. And the spike in interest rates threatens to upset the recovery party.

NEW YORK (CNNMoney.com) -- The 10-year Treasury yield soared to 4% for the second day in a row Thursday, heightening inflation fears and threatening to upset the nascent signs of an economic recovery.

Just six months ago, the yield on the 10-year note hovered around the 2% level, as investors opted to park money in government-backed debt rather than higher risk equities.

The bond market typically takes a back seat to the stock market, which offers higher rewards but also higher risk. As the economy slogged through the recession, investors have remained cautious and plugged into bonds.

Prior to Wednesday, the benchmark yield had not reached 4% since mid-October. But Wall Street's tectonic plates have started to shift.
The Dow Jones industrial average has surged 30% since hitting its 12-year low on March 9. Investors have been shrugging off bad economic news and seeing 'less bad' news as good news. As investors grow more optimistic about the "green shoots" of the recovery, the bunker trade into the Treasury market has waned.

The sharp drop off in debt prices is also a result of the massive amount of supply hitting the market. The government has been spending at a breakneck pace and it has been selling an unprecedented amount of debt to finance its rescue efforts.

Housing. Rising interest rates have been pulling the rug out from a housing recovery.
The 30-year fixed mortgage rate moves in tandem with the benchmark 10-year Treasury yield, which has been on a tear. Mortgage rates hit 5.65% last week, according to a Bankrate.com's most recent national survey.

To try to keep a cap on mortgage rates, the Federal Reserve unveiled a program in mid-March to buy back $300 billion of its own debt. The so-called quantitative easing program was launched to jolt the Treasury market with demand, boost prices. The program worked for a while: Mortgage rates fell and refinancings surged.

But the benefits of the Fed's program were short-lived. And the debt buyback program is beginning to look a lot like the government using a soup ladle to keep a river from overflowing its banks.

Just this week, the government had three auctions lined up to sell $65 billion in debt: $35 billion of 3-year notes were sold Tuesday, $19 billion in a reopening of the 10-year note was sold Wednesday and $11 billion in the reopening of a 30-year bond was scheduled for Thursday.
Waning support. Other countries have started to doubt the creditworthiness of the U.S.

Russia and China have both indicated that they are concerned about the unsustainable pace of spending. Russia said Wednesday it would consider shifting assets to other safe havens, like International Monetary Fund bonds.

"Longer term, the concern over foreign interest is a wake up call to Congress and the President," said Nick Kalivas, vice president of financial research at MF Global, in a daily research note. "The idea that the IMF bond is getting attention is a sign of investor worry over the U.S. fiscal situation.

With inflation fears rising and an economy still breathing on the lifeline of the government, the future of the bond market is murky. Some investors are looking for the Fed to try to increase its commitment to the debt buyback program. The Federal Open Market Committee is slated to meet June 23 and 24.

Debt prices. The benchmark 10-year note fell 4/32 to 93-6/32, and its yield rose to 3.97%. Earlier in the session, the benchmark Treasury touched 4%. Bond prices and yields move in opposite directions.

The 30-year bond was down 16/32 to 91-12/32, and its yield rose to 4.80%. Earlier in the session, the longbond yield reached 4.83%.
The 2-year note dipped 1/32 to 99-2/32 and its yield edged up to 1.37%. The yield on the 3-month note held steady at 0.18%.

Lending rates. One key bank-to-bank rate continued to move lower. The 3-month Libor edged to 0.63% from 0.64% the day prior, according to Bloomberg.com.
The overnight Libor rate held steady at 0.26%.

Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money. The closely-watched benchmark is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor.

Credited to: www.CNNMoney.com

Senate Pushes to Revive $15,000 Homebuyer Tax Credit

From the desk of:

Rich Storey
Mortgage Advisor
615-260-8028

Senate Renews Push to Expand Homebuyer Tax Credit to $15,000
By Dawn Kopecki

June 10 (Bloomberg) -- Lawmakers are pushing to revive legislation in the Senate that would almost double an $8,000 tax credit for first-time homebuyers and expand the program to all borrowers.

Senator Johnny Isakson, a Georgia Republican, plans to introduce a bill today that increases the tax credit to $15,000 and removes income and other restrictions on who can qualify for the credit, according to his spokesman, Sheridan Watson.

The legislation, which is co-sponsored by Senate Banking Committee Chairman Christopher Dodd of Connecticut and other Democrats, would extend the homebuyer credit to multi-family properties that are used as the borrower’s primary residence. It would also eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit.

“The housing market continues to be a drag on the economy, said John Castellani, president of the Washington-based Business Roundtable, which represents the interests of more than 100 CEOs including General Electric Co.’s Jeffrey Immelt and Exxon Mobil Corp.’s Rex Tillerson. “We believe that if we don’t stabilize this vital sector, we can’t turn the tide on the recession.”

The Business Roundtable and the National Association of Realtors are both pushing to expand the tax credit and to lower mortgage rates to revive the U.S. housing market.

Isakson’s bill would extend the credit, which expires at the end of 2009, to one year after it’s signed into law, according to Watson. It would also allow borrowers to divide the credit over two years. The bill is co-sponsored by Republican Senators Lamar Alexander of Tennessee, Saxby Chambliss of Georgia, David Vitter of Louisiana and James Risch of Idaho.

Senators Patty Murray, a Washington Democrat, and Joseph Lieberman, a Connecticut independent, have also signed on to the bill, according to Watson.

Mortgage Rates

The roundtable and Realtors groups also recommended the Federal Reserve continue its plans to purchase mortgage securities guaranteed by Fannie Mae, Freddie Mac and the Federal Home Loan Banks to drive down mortgage rates below 5 percent.

The Fed is about a third of the way through its $1.25 trillion commitment, holding $427.6 billion of mortgage debt backed by the government-sponsored enterprises as of June 3, according to the New York Federal Reserve.

The average rate on a 30-year fixed-rate U.S. mortgage jumped last week to the highest level since November, rising to 5.57 percent from 5.25 percent the prior week, according to data released today by the Mortgage Bankers Association.

Credited to: www.Bloomberg.com

Mortgage Applications Drop

From the desk of:

Rich Storey
Mortgage Advisor
615-260-8028

Mortgage Applications Fall as Interest Rates Jump
By Shobhana Chandra

June 10 (Bloomberg) -- U.S. mortgage applications fell last week to the lowest level since February as a jump in borrowing costs discouraged refinancing and signaled that Federal Reserve Chairman Ben S. Bernanke’s efforts to cap rates is stalling.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance dropped 7.2 percent to 611 in the week ended June 5, from 658.7 the prior week. The refinancing gauge fell 12 percent. The purchase index gained 1.1 percent.

Fixed U.S. mortgage rates jumped to the highest level this year last week, threatening to deepen the housing slump and sideline prospective home buyers. An improving economic outlook spurred an increase in rates even as a rising jobless rate is contributing to record home foreclosures. Still, lower property values are helping the housing market stabilize.

“We still have a long way to go before conditions are good,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. “We need to get this market back up and running more normally.”

Government bond yields, consumer rates and price swings are increasing as the Fed fails to say if it will extend the $1.75 trillion policy of buying Treasuries and mortgage bonds through so-called quantitative easing, traders say.

Rising Yields

The yield on the benchmark 10-year Treasury note rose to 3.90 percent last week as volatility in government bonds hit a six-month high, according to Merrill Lynch & Co.’s MOVE Index of options prices. Thirty-year fixed-rate mortgages jumped to 5.45 percent from as low as 4.85 percent in April, according to Bankrate.com in North Palm Beach, Florida. Costs for homebuyers are now higher than in December.

The mortgage bankers’ refinancing gauge issued today fell to 2,605.7, the lowest level since November, from 2,953.6 the previous week, today’s report showed. The purchase index rose to 270.7 last week from 267.7.

The share of applicants seeking to refinance loans fell to 59.4 percent of total applications last week from 62.4 percent.
The average rate on a 30-year fixed-rate loan surged to 5.57 percent, the highest since November, from 5.25 percent the prior week.

Borrowing Costs

At the current 30-year rate, monthly borrowing costs for each $100,000 of a loan would be $572, or about $44 less than the same week a year earlier, when the rate was 6.25 percent.
The average rate on a 15-year fixed mortgage rose to 5.10 percent from 4.80 percent the prior week. The rate on a one-year adjustable mortgage increased to 6.75 percent last week from 6.61 percent.

The Washington-based Mortgage Bankers Association’s loan survey, compiled every week, covers about half of all U.S. retail residential mortgage originations.

Construction companies continue to struggle. Toll Brothers Inc., the largest luxury homebuilder, and Hovnanian Enterprises Inc., New Jersey’s biggest builder, this month reported quarterly losses that exceeded analysts’ estimates. Revenue dropped at both businesses.

Among reports indicating an improvement in housing, figures from the National Association of Realtors showed the number of Americans signing contracts to buy previously owned homes climbed 6.7 percent in April, more than forecast and the fourth increase in five months, as lower prices attracted buyers.

The rise in borrowing costs in the face of record low interest rates, Fed purchases and a contracting economy is the opposite of the challenge Bernanke’s predecessor, Alan Greenspan, confronted when he led the Fed.

In February 2005, Greenspan said in the text of his testimony to the Senate Banking Committee that a decline in long-term bond yields after six rate increases was a “conundrum.” At the time, he was trying to keep the economy from overheating and sparking inflation. Now, Bernanke may be facing his own.

Credited to: http://www.bloomberg.com/