With long-term rates continuing to plummet, it’s causing another round of refinancing similar to the refinancing that went on in the early part of this decade. I locked in a new 30-year mortgage for 4.875% today. I personally know 7 people that have inquired or actually refinanced in the past 24 hours. So, that got me thinking. If you recall, I mentioned Mastercard (MA) a couple of weeks ago. I liked them because they get paid by the swipe. They don’t take on debt liability. They just get paid for each transaction. Well, with all the refinancing happening right now and over the next few months, I think Fidelity National Financial (FNF) will be the biggest beneficiary. FNF provides services in the closing process. It reminds me of Mastercard. They don’t take on the debt, they get paid by the close so to speak.
This stock has had a big run from the bottom and it’s technically at a place it could roll over. But, on this one, the fundamentals are so good, I believe the technicals are a secondary consideration. There are lots of ways to play low rates. I’ve been pounding the table on corporate bonds & agency bonds and those are working beautifully. But, in the equity markets, you have to look at who has visibility. That means we can see their profits in the future and they look really good. In fact, many believe their estimates are way too low given the amount of refinancing activity we’re seeing.
Disclaimer: I own shares of Fidelity National Financial (FNF).
Through A Trader's Eyes 
How long do you think mortgage rates will stay at this level or lower? I am looking to buy my first house and even if I buy today, it will be 4-6 months before they would finish building it. I am in a panic feeling like I need to catch these low rates right now before they go higher again next week, or next month. Please help.
Jessica,
I think the Fed’s goal is to keep rates as low as possible for as long as possible. I think they will go lower and I don’t think there’s a huge rush to refinance but with rates under 5%, a lot of people will be refinancing. I think you have a big decision on the house and I wouldn’t let these rates dictate what you do. Rates will be low for at least the next quarter or so and more than likely longer than that. Find a good deal on the house. Negotiate the heck out of it and then you’ll still be able to get a good rate.
Thanks for the feedback. People are telling me that I can get a good deal on an old house but if I want a new house built from the ground up, home builders will not bargain with you. They rather just sit on the empty lot until they get their price. In fact, one home builder (Coventry homes) just increased their prices here in Houston. Any thoughts on that?
I work in the Houston housing industry. It is true that builders will be reluctant to build a house from the ground up, mostly from all the bust outs, but unless you are getting a custom home you should be able to get pretty much anything you want that is already built, if you want it trim, fixtures, etc. ask for it, and they will no doubt work with you. Home builders are giving huge discounts, and they need to burn off their supply. Houston is out performing all other markets in the country, but that means that corporate has to get revenue from Houston to carry the business. Negotiate, research, and realize that builders are in a terrible position. the fact that you can get a loan, and are willing to go through with a sale, should motivate them.
Karl,
Love the site and listen to you all the time on Biz. I am sure you know all about the coming CMBS storm. It hasn’t hit the airwaves yet and SRS has shown some weakness. Do you think it is a good time to move in and pick up some shares, or do you think there will be a January effect causing the rally to continue for another month.
I am down a devastating 89% on AFN. What is your opinion of this position for those who are already in? Don’t they own the same bonds that you and Dan own? Thanks.
Apparently not. Our bonds are performing very well. Remember, they short, they use leverage. Things that we don’t necessarily do. Not sure what their problem. They do a lot of sophisticated bonds. We do mortgage bonds as well but also use corporate bonds, munis, etc. They don’t buy these types of bonds.
I have been looking at agency bonds and the YTM don’t look very attractive unless you go out 10-30 years. Have I missed the boat on these and the government is close to completing their purchases, hence capping any future capital gains from here? I feel like I am late to the game again.
0-2 yr 2%
2-5 yr 4%
5-10 yr 5%
10-30 yr 5.8%
All the mortgage bonds I buy are 30 year maturities. However, mortgage bonds go by what’s called average life meaning many will only last as long as a typical mortgage lasts, which is typically 5-7 years. Additionally, the agency bonds I buy have special provisions where they will pay more than the typical agency bond. So, you really have to do your homework when purchasing these.