September 23, 2011

Record Low Rates Here & Gone. How To Deal With It.

September 23, 2011

Record Low Rates Here & Gone. How To Deal With It.

Mortgage traders are drowning in volatility, and it’s not because of Operation Twist. The surprise earlier this week is that the Fed will also start reinvesting maturing cash flows from existing mortgage holdings back into mortgage bonds (it was buying Treasuries) to support housing.

Stocks were hit on the FOMC’s gloomy economic outlook and bonds rallied wildly on the mortgage bond buying news, pushing rates down. But as I said Wednesday, a correction was likely. Sure enough, mortgage bonds are selling sharply (FNMA 30yr 3.5% coupon -62 basis points), and rates are up.

But all is not lost: rates touched extreme lows yesterday, but they’re still at pretty extreme lows.

How To Lock Rates Amidst Extreme Volatility
Here’s what you need to know getting the best rates amidst this “here and gone” rate volatility.

Gut-wrenching daily rate swings up and down will continue as traders enter and exit mortgage bonds based on the latest global economic news.

When locking rates in this environment, remember that rate locking strategy isn’t like investing strategy.

With investing, you stick with a plan and adjust slightly through short-term bumps. With rate locking, it’s a trading exercise.

You have to pick a high-end rate target that you can’t or won’t go above, and be ready to act whenever it’s there.

Since rates change throughout each trading day, make sure your mortgage advisor knows your target so they can lock your rate at a moment’s notice as markets dictate—even if they can’t get in touch with you.

Rates are truly ‘here and gone’ in seconds each day, so pick your target and give your mortgage advisor a standing order.

Keep your seatbelt on, and stay tuned:

WeeklyBasis: my market recap/outlook with rates published Saturdays.