27 Mar Cost of Mortgage Loans Increasing
Mortgage bonds continue to perform well today, fueled by a large losses in the stock market. I believe the stock market rally that we saw over the past three days was nothing short of a mid-term correction, which is actually a healthy thing to have happen in the midst of a rapid downturn. It now sets the stage for stocks to continue their downturn in a more healthy and certain pattern. Since longer term movements never happen in a straight line, we expect for a mid-term correction to regain up to 50% of the losses before taking another drop lower. Yesterday’s move was a textbook one. Now we will see stocks fall back down to levels that more justify the current state of our economy and corporate performance.
As we have discussed in recent market updates, the mortgage industry is in a dire state. This is leading to many companies not being able to lock in rates, as well as very aggressive guideline tightening processes hitting us one after another. With many workers not currently employed and others taking pay cuts, the number of borrowers who are able to qualify for a home loan will be greatly reduced. Also, even though the bond market is performing well, we will see upward pressure on mortgage interest rates as default risk continues to climb. This is a tough time in the mortgage industry. Remember to show grace to your mortgage provider, regardless of what company you are working with.
We will maintain a locking bias.