A Mortgage Rate Prediction For The Next 7 Days (October 7, 2010)

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Checking out mortgage rates and looking to lock? Before you do, take a peek at this week's Bankrate.com Mortgage Rate Trend Index.

Conforming Mortgage Rates Only

The fine print: These mortgage rate predictions are for Fannie Mae- and Freddie Mac-backed loans only. They're good for rates in places like Mason, Ohio; Loudoun County, VA; and everywhere else you can get a conforming, conventional mortgage.

The survey does not cover FHA streamline refinances. Furthermore, "special" loans like non-warrantable condos, condotels, and loans for investors with more than 4 mortgages are excluded.

for a real-time rate quote.

Breaking Down The Predictions

Here's the mortgage rate outlook for the upcoming week:

• 38% think mortgage rates will increase
• 31% think mortgage rates will decrease
• 31% think mortgage rates will won't change

I expect mortgage rates to decrease.

My advice not be appropriate for your individual situation and I'm not always right. Ultimately, you may find your time better spent XXXX.

Either way, here's what I told Bankrate.com:

"With talk of Fed-led stimulus, traders move into mortgage bonds. Mortgage rates down."

There's a new buzzword in mortgage markets. It's QE2. It may be a factor in extending the current Refi Boom.

This Refi Boom Has Outlasted Baseball Season

It's been a long time since mortgage rates went up. We have to go back to late-March for that, just before the start of baseball season. During these last 23 weeks, conforming mortgage rates have dropped by nearly 90 basis points, or 0.90%.

A homeowner who refinanced his mortgage in April could do another refinance today and make big savings. The monthly payment would be 10% lower today versus April 2010, and that's assuming a a rate consistent with zero-cost remortgaging.

Because rates keep sliding, there's double-dippers in this Refi Boom. Can't blame them, either.

Remember -- you don't have to drop your rate by 1% to have a refi make sense. You only have to have your monthly savings dwarf your loan costs. And with a zero-cost mortgages, it works every time.

Not sure how zero-cost refinances work? You canto ask your questions and get rate quotes.

Meanwhile, there's reason to think rates may fall further.

What Is QE2 And Why Would It Lower Mortgage Rates?

Mortgage rates are derived from a basic formula tied to the "going price" of a mortgage-backed security.  The relationship is inverse.  When bond pricing falls, mortgage rates rise.

Conversely, when bond pricing rises, mortgage rates fall.

This Refi Boom is everlasting because one event after another seems to stoke Wall Street's wish to own mortgage bonds. The ballooning demand sustains the bond price rally which, in turn, drive down mortgage rates over time.

And, the latest reason Wall Street clamors for mortgage bonds is what's being dubbed QE2 -- a nickname for the Fed's expected "Qualitative Easing II".

As part of QE2, investors presume the Federal Reserve to step into the free market and purchases billions of dollars of U.S. Treasuries, MBS, municipal debt, or a combination of all 3. The Fed's purchases would create a buy-side imbalance in bond markets, which would cause MBS prices to rise and mortgage rates to fall.

If the Fed does get involved, the likelihood of rates falling is higher because -- although they're calling this QE2 -- we've seen the scenario play out 3 times in the past 23 months.

• November 2008 : Fed commits $500 billion to mortgage markets. Rates drop overnight.
• March 2009 : Fed commits additional $750 to mortgage markets. Rates drop overnight.
• August 2010 : Fed commits MBS bond program income to U.S. Treasury market. Rates drop.

As a rate shopper, you should be paying attention to this stuff because whenever QE2 is even mentioned, mortgage rates seem to improve.

In Case QE2 Doesn't Happen, Get That Rate Lock In Pronto

The danger here is if QE2 never happens. The mortgage rate improvement since October 1 is tied to Wall Street thinking the Fed is going to act.  That belief will push rates down for another few days, at least.

However, if by next week, the Fed doesn't make an announcement one way or the other, be wary of Wall Street unwinding its trades as a precaution. When Wall Street backs out, the same forces that took rates lower will carry them straight up.

It won't be weird if rates jump 0.250% in a day, and 0.500% in a week.

Remember -- there's no penalty for refinancing twice (or thrice!) so if you're worried about missing the market bottom, don't be. Refinance now, and then refinance again later if the opportunity happens to present itself.  That's exactly what the people from April are doing.

Need to lock a rate? Here's the steps:

1. with the basics of what you're trying to do. No novels -- just some bullet points.
2. Wait for my reply -- I'll have some follow-up questions for you.
3. Next, I'll get you pricing for your comparison shopping

If you like the rate, I'll lock it for you and we'll start working toward closing. That's it!

Expect me to reply to your initial email within about an hour, during business hours.