May 7, 2012

Like Austerity Would Have Worked Anyway

May 7, 2012

Like Austerity Would Have Worked Anyway

Rates are trading near record lows after the one-two punch of weak U.S. jobs and leadership changes in France and Greece. Both create uncertainty that leads investors into safer bets like mortgages (MBS) and Treasuries.

The 3.5% Fannie Mae MBS coupon that serves as a benchmark for lender pricing is at an eye-popping high of 104.03. And the 10yr note price is 101.0625 to yield 1.88%.

Rates drop when bond prices rise like this.

Friday’s jobs report was the second straight month of substantially weaker job growth. It showed the U.S. economy added 115k non-farm payrolls in April. March was revised up from 120k to a still-weak 154k. The three months before March averaged a more respectable 252k.

And this weekend French voters replaced Sarkozy with Francois Hollande who vows to push for growth over austerity. And the same theme is playing out in Greece, calling into question the terms of their most recent bailout.

Not that Greece bailout 2.0 addressed their core problem.

And not that Eurozone austerity is the silver bullet anyway.

But as IMF director Christine Lagarde said today about the growth vs. austerity debate: “It’s not either/or.”

Too much austerity cuts off growth. Too much stimulus causes debt loads nations can’t grow out of.

So the elections just remind us of an incredibly complicated situation with only one decision politicians and private investors must eventually sort out:

Debt that can’t be paid won’t be paid, so it’s only a matter of who will take the losses and when.

All debt crisis debates are as simple as this.

The rest is political chatter and investors seeking safety in MBS and Treasuries.

The only good news in all of this is record low rates.

This could be the case for a long time.

Below is this week’s light U.S. economic calendar and a snapshot of rates as of now:

CONFORMING RATES ($200,000 to $417,000) 0 POINT:
30 Year: 3.75% (3.87% APR)
FHA 30 Year: 3.75% (3.87% APR)
5/1 ARM: 2.625% (2.745% APR)

SUPER-CONFORMING RATES ($417,001 to $625,500 cap* by county) 0 POINT:
30 Year: 3.875% (3.995% APR)
FHA 30 Year: 3.75% (3.87% APR)
5/1 ARM: 3.125% (3.245% APR)

JUMBO RATES ($625,501 to $2,00,000) 1 POINT:
30 Year: 4.25% (4.37% APR)
10/1 ARM: 3.625% (3.745% APR)
5/1 ARM: 2.625% (2.745% APR)

Lower or higher rates apply to specific borrower and property profiles. Better or worse rates available using tax deductible points or zero-cost transactions. These rates assume full doc pricing on Single Family Home purchase loans for borrower with 740 FICO score or greater, at least 20% equity (unless FHA), and 6-12 months reserves left over after close (retirement assets counted at 60% of value for reserves). ARM rates adjust the first month after initial fixed period shown, and once per year thereafter until year 30. Adjusted rate calculated by adding 2.25% margin to 1yr LIBOR index at time of adjustment. At first adjustment LIBOR+margin cannot exceed start rate+5%, subsequent yearly adjustments can never be greater than 2% per year, total of all adjustments for 30yr life of loan can never exceed start rate+5%. Rates based on loan amount ranges shown and rates available at the time of production. Rates aren’t a loan commitment nor a loan guarantee, and are subject to change without notice.

*Conventional Super-Conforming cap = $625,500. FHA Super-Conforming cap = $729,750.