Comments Off on Looking Back And Looking Ahead : September 8, 2008

Looking Back And Looking Ahead : September 8, 2008

2008
09.08

Mortgage markets improved last week on Hurricane Gustav’s less-than-expected damages and a strengthening U.S. dollar.

Even factoring in Friday’s 0.125 percent run-up on most mortgage products, rates improved overall.

It’s the second straight week in which mortgage rates improved.

But for all the news that we could dissect from last week, it should be the news from this week that proves most interesting.

This is because on Sunday, the U.S. government assumed control of Fannie Mae and Freddie Mac.

So far, the papers have done a terrific job talking about the political perspective of the takeover, and the economic perspective of the takeover, but very few have addressed the key news for homeowners — mortgage rates are plummeting.

Mortgage rates are improved this morning because of Fannie Mae and Freddie Mac’s collective role in the U.S. mortgage market.

  1. They guarantee about half of the nation’s $12.1 trillion in mortgages
  2. They purchased and securitized four-fifths of the nation’s home loans as recently as six months ago

See, earlier this year, Wall Street punished Fannie Mae and Freddie Mac for their weak balance sheets and increasing number of mortgage delinquencies. This led to Wall Street to raise the borrowing costs for the two firms across the board which, in turn, led to higher mortgage rates for Americans.

But today, with their balance sheets backed by the U.S. government, Fannie and Freddie are now viewed as “safe” by the eyes of Wall Street. Their borrowing costs have been lowered, therefore, and mortgage rates are falling in response.

This week is light on economic data but it shouldn’t really matter. Mortgage rates should close the week lower than where they started for the four-fifths of the country that uses Fannie or Freddie’s conventional mortgages.

For everyone else, keep an eye on the U.S. dollar. Its strength continues to have positive consequences on the mortgage markets.

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