Mortgage Bonds Dropping Sends Rates Higher

Fixed rate loans rose by about .25% today as mortgage bonds were hit. There was some bad news in financial sector (again) with Citi and Bank of America both posting major losses.

Citi reported $8.29 billion in losses for the fourth quarter. They are on the record stating 2008 as their worst year ever. It's worth qualifying that by saying that they've been around since 1812; I'd say that's a while...

Bank of America lost a mere $1.79 billion in the fourth quarter to round out one of their worst years. They stated that this is their first yearly loss in seven years. Please excuse me if I don't congratulate them for their stellar performance. I own some B of A stock and, let me tell you, it's a dog (and not even a cute dog). On the positive side- they did bail out Countrywide and Merrill Lynch. Word has it that they are going to get a bunch more money from the government (read: Joe the Tax Payer).

Back on point:
Today saw money shift from the bond market back into the stock market which drove the 4.0% FNMA bond down 44 bps (basis points: 100bp = 1%). Rates are up across the board as a result. This is totally lame for people that had to lock today but if you didn't hear from me about locking your loan, there's a reason.

I think this is a temporary dip in the market and suggest waiting it out. The government is busy spending their $500 billion on mortgage-backed securities which definitely is, and will further help bond prices. To date they have only spent about $33 billion, so there's a long way to go. Also, we are seeing some of the lowest inflation since 1957. In 2008 the inflation rate was about 0.7%. When you consider that mortgages are long-term loans, inflation is VERY important. Historically rates rise when inflation rises- just look at the 1980's.