The Sky is Falling!

Ah, okay, you know me better than that. Yeah, things are rocky, but not that rocky. Life is going to go on. For nearly everyone.

Apropos of that, I got a note from someone yesterday asking all sorts of questions about how the market turmoil affects him and his. he owns a house with some equity in California, has about $150,000 in equity (worst case scenario), but that used to be closer to $200,000. He has excellent credit but not the world's greatest income (though it's better than most). He's on an adjustable rate mortgage, fixed at 4.25% right now, but it goes variable in 30 months. Should he lock into a fixed rate? Will the market collapse and take his home with it? Doesn't the Fed care about little homeowners like us? What to do?

Here's most of my reply:

BYU1-

Whew. Long story, there. I'm happy to help however I can.

The bottom line is no, you shouldn't worry. This is not to say that there's no chance that the market could collapse, because there is. There always is. The chances are not very good, though, and you'd be more profitably employed worrying about something with a better chance of happening, like, say, BYU being unable to field a team this season because everyone has had Lisfranc surgery. :-)

I do think mortgage interest rates will rise over the next couple years. Your friend is correct that 2+ years is a long time, and worrying about that now is likely not going to do you much good, but my advice would be to seriously consider the fixed-rate market and figure out at what point it would make sense to refinance to a fixed loan. When the market hits that point - and you're welcome to email me anytime and ask - do the deal. If it doesn't get to that point, don't do anything.

This year, incidentally, I think 30-year rates are going to fall from here. We could hit 6% [par today is 6.25% - ed]. That's a real possibility. If that's your target, then that's something to watch for.

As far as the conforming loan limits go, I do not think they'll rise by enough this next year to get you under the threshhold. That's a bit of a jump to get from $417k to where you are. It's possible, but unlikely. The jumbo combined loan you'd have to do would be about .5% higher than the conforming rate, or you could split the loan again and stay under the line, whichever makes more sense.

As to the Fed, no, they don't care. More to the point, they're not supposed to care. I don't like the Fed much, I have to say, but that's not because they're heartless [the heartless Fed cut the symbolic discount rate by .5% this morning, not because that's really going to help much, but because it sends a message that Daddy is not going to sit idly and let the market collapse. The Dow responded by rocketing 300 points on the open, and that noise you hear is a sigh of relief in the credit markets. Remember, the amount of damage we're talking about in this "crisis" with subprime foreclosures is a half-day Wall Street hiccup. Most of the damage being done right now is happening because of panic, not actual financial pain - ed]. Fortunately for you, it's not the Fed that's going to determine your interest rate, but the 10-year bond market. All fixed-rate mortgages are loosely correlated with the 10-year (and, to a lesser extent, the 30-year) bond market. You want the price to rise and the yield to fall on that. We watch those pretty closely here, and again, you want info, email me.

Or better yet, my name's Chris Jones, I run my own brokerage in Lehi, UT, my phone # is 801-310-3407, and my email address is chris@thechrisjonesgroup.com. I also publish a blog (two, actually) at mortgageblogger.blogspot.com, where I talk about this stuff, though not as often as I'd like to. We publish a newsletter as well, and if you'd like, I can put you on our mailing list. Just need your name and address.

I hope this all helps. Any time you have a question, get hold of me and if I can, I'll answer it.

Best of luck.

To you, too. We're here to answer questions, even stupid ones. And yes, there are stupid questions. But we don't care about that.