The Veridian Blog

There were three things that dominated my time last week, and sleep was not one of them.  One, was mouthwatering thoughts of turkey with cranberry sauce.  Two, my “shock and awe” at being able to fill my tank full for less than forty dollars and three, the metaphorical earthquake that shook the mortgage markets on Tuesday.  Proving how volatile 2008 has been, there have been merely four distinct instances when rates have fallen this year.  In each instance, the drop has been short-lived yet extremely aggressive.  While it remains to be seen how long the effects of the government pledge to Fannie and Freddie on the mortgage market lasts, it has been easily the most far-reaching and dramatic drop this year.  Rates fell at least 0.50% for the 30-year fixed program with pretty much every lender we work with and needless to say, rate-lock desks were clogged up by mid-morning.  Adding to the rally was the release by many lenders of the 2009 high-balance conforming products which offers rate schedules identical to those offered to traditional conforming loans of $417,000 or less.  Throughout most of 2008, the soon-to-be defunct “Jumbo-Conforming” loans offered Fannie-salable loans up to $729,750, yet with an added premium of up to 0.50 to 0.75%. 
 
Why did this happen?  In short, the Fed is showing direct support of the mortgage market by pumping $600 billion directly into the lending arena which should significantly increase cash flow and hence, liquidity to borrowers.  The mortgage rally continued into Wednesday with the release of lower-than-expected Durable Goods Orders (demand for big-ticket items), Consumer Sentiment (consumers less optimistic about their financial situation than originally thought) and New Home Sales (fell to lowest level in almost 18 years).  Rates continued a downward spiral on Friday and again Monday morning when the no-cost 30-year fixed hit an all-time low of 5.375% - nearly a full one percent lower than rates from a week ago.

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