Mortgage Market Update (part II)

Deflation is when prices drop, mainly due to decreases in money supply and credit. And we are sure seeing problems with available credit right now. And with the economy slowing down, we are hearing some people say we are in for a deflationary recession. In a deflationary environment, investors flee into fixed instruments like Bonds because the fixed payment received would actually buy them more goods and services over time.

For those of you in the business a few years, you may recall back in the Spring of 2003, when Alan Greenspan uttered the "D" word. Mortgage Bonds rallied 400bp in a couple weeks, setting off an unprecedented refi-boom. Things are quite different right now, but stay tuned, should more investors wake up to the value of Mortgage Bonds, we could again see a significant improvement in prices. Get your clients informed and ready - all refi-runs have a limited timeframe. And this time will certainly be more challenging as there are fewer programs with stricter guidelines, but the biggest hurdle will be appraised values. Now would be an excellent time to run some filters on your database and see who would best be able to benefit from the window of opportunity when it hits.