The economic downturn has more Americans shifting to smaller homes. For example, Bernie Madoff just traded a 3,500 square foot penthouse for a 9 x 10 windowless studio in lower Manhattan.

Are mortgage rates heading any lower?

I truly wish that I had a crystal ball to consult. My prediction is that conforming has most likely bottomed out for the time being, aside from the occasional market rally, and that jumbo is going to come down soon. As it stands, borrowers can pay a point or two and tie up a 4.5% 30-yr mortgage on a conforming program. This is because the US government continues to buy conforming paper. When other investors express an interest in owning mortgages, jumbo or conforming, we should see mortgage rates drop across the board. Keep in mind however that this may take some time as companies are continuing to grapple with staffing, processing, and funding issues. In the meantime, they will continue to keep their margins high and make as much money as they can. Consider this, commercial and retail banks are looking at overnight Fed Funds near 0%, but conforming mortgage rates are closer to 4.5 - 5%. The average spread between fixed mortgage rates and the 10-year T-note is 2.3%, the highest it has been in over 20 years. And rates still have not moved…

Does anyone know when the $729,250 loan limit will be rolled out? (Why didn’t they just make it 730K???) I guess I may be out of the loop on this one, as I have heard rumors that the big banks are already advertising the new limit. Since this information came from my “cousin’s friend’s uncle’s dog’s best friend’s owner”, (I have seen nothing tangible) I remain skeptic that anyone has access to the funds. FHA has already been raised, but not conventional financing. I guess we will just have to wait and see.

In other news…

We have witnessed firsthand the problems with residential loans – is commercial paper next? Banks are reporting increased loan delinquencies from owners of office buildings, casinos, and shopping malls. The country’s 10 biggest banks have $327.6 billion in commercial mortgages, and Wells Fargo and Bank of America account for about half of commercial mortgages owned by these 10. According to a study from research firm Reis Inc., commercial property prices are down almost 20% in the past year. Bank of Hawaii Corp., City National Corp., Comerica Inc. and Sovereign Bancorp Inc. were among the companies put on Moody’s list of lenders with a “negative outlook” last week, partly because of their “risk concentrations” in the commercial market.

Ryan Ogata
Senior Mortgage Consultant