Non-Sequiturs

The spread between the 10 year constant maturity Treasury and average conventional mortgage rates has narrowed from about 2.6% at the end of January to about 1.95% last week. That compares with a spread in April, 2008 of about 2.2% and about 1.5% in April 2007. The Treasury's plan to buy mortgage backed securities has precipitated some narrowing of the spread – which helps lower consumer mortgage rates. But the spread has not yet returned to the levels that existed before the financial crisis began.

Today, 30 year fixed conventional mortgage financing is available at approximately 4.75% plus a 1% origination fee.

In the last sixty days, 30 year fixed financing for jumbo loans (greater than $417K) has begun to return. Some lenders are quoting 30 year fixed rate jumbo financing in the high 5's with a 1% origination fee. Jumbo adjustable rate financing with the rate fixed for the first five years is plentiful - with the first five year's rate in the high 4's and low 5's.

In the fall of 2008, Fannie Mae and Freddie Mac tightened their mortgage qualification guidelines for investment property purchases and refinances. Their guidelines were changed to limit the number of financed properties owned by the borrower to five. Effective May 1, they have raised that limit back to ten properties. The qualifying and down payment requirements have been tightened for those borrowers who own 5 to 10financed properties. Nonetheless, this affords investors the opportunity to refinance their existing properties and to acquire new properties. This should help absorb some of the foreclosure inventory.

The state and federal moratoriums on foreclosures have expired, or soon expire, in most states. The federal foreclosure assistance programs do not work for everyone. We will see a spike in foreclosures and inventory over the next 30 to 120 days.

On April 29th, the Treasury will announce it's 10 year and 30 year offerings for the May bond auctions. Bond investors are concerned about the possible needs of the Treasury, the size of the auctions and the market's ability to absorb huge supplies of new bonds. This auction could be a glimpse of things to come. The fiscal deficits are just beginning to put pressure on the bond markets. It is reasonable to believe that this could signal the bottom of this interest rate cycle. If the auctions go well, rates could drop. But it will probably be temporary. If the auctions go poorly, rates could spike.