08 October 2010 – October surely has started out with a bang. This not the bang that you get when you light a firecracker and sit with anticipation of the inevitable glorious explosion. No, this is more like the unexpected bang that you get when someone secretly lights a firecracker under your chair. In short, we were once again surprised by a dip into new lows for Fannie Mae and Freddie Mac mortgage loans.

The interesting thing about this most recent drop is that there was no major economic news this week. The main driver for this and other recent drops in the mortgage marketplace has been the continued belief in favorable Fed policy. In previous statements, the Fed has communicated that they will likely purchase Treasuries to increase the money supply to further bolster the weak economy. This may or may not happen, but the continued stagnation in all sectors of the economy seems to be sending a message to investors that such a move is more likely than not.

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I am recommending that my clients closing in 15 days or less from today LOCK their rates. The Mortgage News Daily actually described it as “Gary Busey crazy” not to lock and I think that is better said than I could have myself. 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. This is especially important as any sustained positive news will decrease the likelihood of the aforementioned Fed policy.

As a post script, I do wanted to highlight that the movement in the mortgage market is at this point minor. Drops can be summed up in fractions of a percentage. So for those who locked last week, fear not, your rate is hair away from the lowest points in history. For those who are procrastinating, your potential gain is undoubtedly eclipsed by the risk. When the economy improves, these rates will be gone, possibly forever.