22 October 2010 –As I began writing this week’s commentary, I realized I had exhausted my analogies for the ebb and flow of rates we have seen over the past months. That is until I thought back over the years to my Junior Year at West Point standing in a platform above a Long Island night spot with a bungee cord tied to my ankles preparing for the plunge. Then I remembered the jump into the void and the plummet to the bottom of my descent. As soon as I reached that point, I was pulled back violently into the air as the elastic reached its limit. Propelled to a new high-point, I again dropped. Up and down I went for several iterations with gravity and the bungee cords sending me up and down. This, more than anything I have written, describes our current volatile environment with competing forces pulling rates violently to and fro.

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This week we saw the same yo-yo rate phenomenon as the past weeks. We opened relatively flat on Monday, but then saw material drops in Fannie Mae and Freddie Mac conforming mortgage pricing on Tuesday. The main driver for the drop was concern over Bank of America and the possibility that they would need to buy back ~$47 million in loans from their acquisition of Countrywide. Favorable news in the areas of unemployment, housing starts and earnings shortened the opportunity for rate watchers to secure the best rates, however, as equities robustly recovered. At the time of writing this, some alarming news about continued need for billions more in support and capital infusion at Fannie Mae and Freddie Mac had been released and unrest over a proposed increase in the retirement age had spread more wildly in France, so there may still be hope for rate procrastinators.

I am recommending that my clients closing in 15 days or less from today LOCK their rates as the volatility is too great to warrant the risk. For those closing more than 15 days out, I would suggest FLOATING for now with a watchful eye on the markets for the best opportunity.