RATE/MARKET UPDATE

Rates initially rose this week on a stronger-than-expected business inflation report Tuesday, but recovered after the Fed reiterated that they expect weak economic conditions to help keep rates lower for the near term. Rates end this week about the same as last week.

But it should be noted that Bernanke’s Fed is highly market oriented. Their post-meeting statements, like the one they issued Wednesday after their final 2009 policy meeting, don’t indicate this explicitly but the minutes of those meetings do. The minutes are very specific about how market oriented they are, and recent minutes describe how the Fed will look to raise rates by selling mortgage bonds and/or hiking overnight rates when they see more sustained economic improvement and/or inflationary pressure. Their first of eight 2010 meetings is January 26-27.

ECONOMIC PREVIEW NEXT WEEK

Some of this data will come next week with the final 3Q2009 GDP reading on Tuesday, which should confirm that the economy grew about 2.8%, the first growth (as opposed to contraction) number in five quarters. Personal Income/Spending and a key consumer inflation reading Wednesday: Personal Consumption Expenditures is the Fed’s favorite measure of inflation, so mortgage bond markets will sell off if it’s higher than expected. When bond prices drop in a selloff, rates rise. We also have existing and new home sales reports Tuesday and Wednesday.

CONFORMING RATES ($200,000 – $417,000) – 1 POINT

30 Year: 4.875% (5.02% APR)

FHA 30 Year: 4.875% (5.08% APR)

5/1 ARM: 4.0% (4.13% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 1 POINT

30 Year: 5.125% (5.26% APR)

FHA 30 Year: 5.125% (5.25% APR)

5/1 ARM: 4.5% (4.63% APR)

JUMBO RATES ($625,500 – $3,500,000) – 1 POINT

30 Year: 5.625% to 5.875% (5.78% to 6.02% APR)

10/1 ARM: 6.25% (6.39% APR)

5/1 ARM: 5.25% (5.43% APR)

Scenarios assume full doc pricing on purchase or rate/term refi (but not cash-out refi) loans for borrower with 720 FICO score or greater, at least 20% equity (unless FHA), and 6-12 months reserves left over after close (retirement assets counted at 70% of value for reserves). Better or worse rates apply to specific client profiles. Better rates are available using tax deductible points. ARM rates adjust the first month after initial fixed period shown, and once per year thereafter until year 30. Adjusted rate calculated by adding 2.25% margin to 1yr LIBOR index at time of adjustment. At first adjustment LIBOR+margin cannot exceed start rate+5%, subsequent yearly adjustments can never be greater than 2% per year, total of all adjustments for 30yr life of loan can never exceed start rate+5%. This is not a loan commitment nor a loan guarantee, rates based on loan amount ranges shown and rates available at the time of production. Rates subject to change without notice. California Department of Real Estate license #01376428. Equal Housing Lender.

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