The Elections, The Big Short, and Mortgage Interest Rates
With November's elections now drawing near, politicians in office are looking at sobering polls that show many of them will not be automatically re-elected as in past years. Throwing the bums out may actually occur. This is true of politicians on both sides of the aisles. Priming the pump with cheap money seems to be one thing both sides can agree on.
Pitted against them of late are many large hedge funds (here and offshore) that have begun placing enormous bets that the decrease in rates is unsustainable and that rates will rocket up from their current levels. Sounds like the the subplot in Wall Street: Money Never Sleeps! These hedge funds have shorted (or sold things they do not own) US Treasury securities and MBS securities in record number and volume in the last 30 - 60 days. The big short is now on.
This dynamic is going to be interesting to watch.
The Federal Reserve appears to be siding with a view that will make the current politicians who are in office, as happy as they can be for now. The Federal Reserve Bank's officials have actually testified that they are ready for a second dip, and are more than willing to hop into action with quantitative easing, a fancy term for forcing banks to make loans of all types based on several techniques that make holding/hoarding cash not smart financially. The Fed has also said it may resume purchasing certain securities for it's own balance sheet rather than selling these same securities. Since these announcements, interest rates of all types have gone lower after they had climbed up about a month ago. As an outcome of this news, our currency has gotten clobbered and gold is at an all time high.
Thus far, the hedge funds that have bet on rates going way up, have gotten absolutely crushed.
Given the recent reality that the Great Recession is now technically over as of last month, many would expect home prices and jobs to recover and either stabilize or get better. Guess what? They haven't. Home prices have actually fallen in the last few months and only government type jobs and the cessation of people who are looking for jobs, have kept unemployment rates from going much higher. Small businesses which create the majority of new jobs, simply are not hiring.
What's a voter, investor, an/or borrower to do?
We have no opinion (worth sharing) on the first two types of people above and the decisions they should make. However, we can tell you that while this debate on rates is likely to go on for some time, and at least through the elections, that this current period of time will be reflected on as the golden age of dirt cheap borrowed money. Those who borrow now will be granted mortgage rates lower than they have been in 50+ years.
Special alert to home buyers: many savvy sellers of real estate know the truth, and that is their property is worth 25% - 35% less than it was in 2006/2007, and they have marked their homes down to realistic levels. So, for many, buying a home has never been more affordable. The (negative) flip side of this news applies to folks who are refinancing, as their homes are worth less, making it tricky to "make the numbers work". But, here too, remember that Fannie Mae now permits 100% financing with no mortgage insurance at very close to market rates for those looking to refinance with good credit. FHA presently permits borrowing at lower rates than Fannie Mae, and allows up to 97.5% loan-to-values on refinances.
Please feel free to pass this communication along to friends, family and colleagues. We'd be delighted to help you or any of them navigate the way to a lower rate.
Kevin R. Kenyon Branch Manager NMLS # 8677 Gateway Funding Diversified Mortgage Services, LP D/B/A Arlington Capital Mortgage 33 Witherspoon Street Princeton, NJ 08542 kkenyon@arlingtoncapital.com Direct 609.945.7513 E-Fax 215.793.8201 Licensing information at www.gateway-funding.com
