A few years ago my 80-something year old Mom talked herself out of a speeding ticket by telling the young officer that she had “to get there before she forgot where she was going”. Where does the market think rates are going? The futures market is pricing in a 78% chance that the Fed keeps rates somewhere between 0% and .25% through mid-March. So although overnight rates between banks have a very limited correlation with 30-yr mortgage rates, the odds of mortgage rates going sky-high between now and then are small.

In fact, relative to the risk-free Treasury rates, mortgages have been on a tear for the past week. They have been “tightening”, which means that their rates are moving slightly closer to Treasury rates, which has many puzzled. Yes, origination volumes are down, and the Fed has been in buying, but some analysts believe that accounts that have sold mortgages in the recent past, without actually owning them, may be buying back their trades, i.e. “evening out their short basis positions”.

Yesterday (Monday) we saw the equity markets rally nicely, and in addition many investors had intra-day price improvements. Helping the interest rate markets was a record $40 billion 3-yr Treasury auction that went well. The 3-year note auction gave investors a yield of 1.435%, with a bid/cover ratio of 3.33 – much better than average. Today we have $25 billion of 10-yr Treasury notes to wade through, with no economic news, but some carry through from yesterday puts out current 10-yr at 3.45% and mortgage prices better between .125 and .250!

But what the heck – why are bonds and stocks both doing well? Didn’t we just learn that the unemployment rate jumped to 10.2% and reached the highest level since 1983? The rate reflects the fact that the number of people unemployed is increasing, and unemployed people are notorious about not being able to pay their mortgage, and having their “consumer confidence” be low. And when confidence is low, those flat screen TV’s don’t fly off the shelves. If the economy is about to rebound, as the stock market thinks, then why is the Fed expected to keep low rates for an extended period of time? Many believe that the outlook for growth, or at least a strong recovery, is grim: there is just too much weakness underlying the economy for the Fed to move to higher rates as inflation is not a worry at the moment. So place your money wisely, since something has to give.

Last week I wrote about the current state of MI rescissions. I had numerous responses. One fellow wrote and said, "Virtually every MI master policy contains an “incontestability” clause.  Incontestability simply means that upon the occurrence of certain events (usually a specified number of timely payments), the MI Company can no longer rescind a claim based on either the appearance or actual event of fraud. Although there could be some complex issues, I would submit that in many, if not most, instances the incontestability provisions are operative and that they cannot, according to the terms of the master policy, rescind coverage. The next time your readers receive a rescission notice, I suggest lenders use incontestability as their first line of defense."

A tax credit update! Although most provisions are the same, apparently there is a facet of the recent extension that is retroactive to November 6. Please check out this site, as the start date for the $6,500 credit is November 6^th. http://www.federalhousingtaxcredit.com/faq2.php

Effective today, Flagstar is changing their APR calculation on the upfront MIP refund. Specifically, they “will no longer consider the upfront MIP refund as an item in our APR calculation. This may affect the APR calculation for any FHA streamline refinance with an upfront MIP refund that has been submitted…” And since this change directly affects the APR calculation, clients may be required to redisclose and wait an additional three days if the APR changes by more than .125% due to this change.

And yes, tomorrow is not a rescission day! Rescission days are any day the United States Postal Service does not deliver mail: namely Sundays and holidays. And since there is no mail tomorrow…

A man staggered into a hospital with a concussion, multiple bruises, two black eyes, and a five iron wrapped tightly around his throat.
Naturally the doctor asked him, "What happened to you?"
"Well, I was having a quiet round of golf with my wife, when, at a difficult hole, we both sliced our balls into a cow pasture. We went to look for them and while I was looking around I noticed one of the cows had something white at its rear end. I walked over, lifted its tail, and sure enough, there was a golf ball with my wife's monogram on it - stuck right in the middle of the cow's rump."
“Ah,” said the doctor, “then what?”
“Still holding the cow's tail up, I yelled to my wife, 'Hey, this looks like yours!'"
"I don't remember much after that ..."

(There will be no commentary tomorrow due to the holiday.)

Rob

(Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx. For archived commentaries, check www.robchrisman.com, or to subscribe/unsubscibe write to rchrisman@robchrisman.com.)