Mortgage Rate Summary May 26, 2009

Mortgage bond prices fell last week pushing mortgage interest rates considerably higher. Inflation fears dominated trading. Philadelphia Fed President Plosser warned, "The economy may be at greater risk of inflation than conventional wisdom indicates." A weaker US dollar, escalating oil prices, and concerns about the US debt rating also pressured mortgage bonds lower and mortgage interest rates higher. Trading remained volatile throughout the week but most of the worsening occurred Thursday and Friday. For the week, interest rates rose by about 1/2 of a discount point. The gross domestic product data Friday will be the most important release this week. The additional debt supply associated with the Treasury auctions will also play a critical role in any mortgage interest rate volatility this week. LOOKING AHEAD

US Credit Rating

There are concerns all across the globe that the US will lose its AAA credit rating. Standard and Poor's recently downgraded the UK from stable to negative. Many analysts expect the UK to lose its AAA credit rating. Market participants are concerned the US will follow as deficit spending continues. Bond guru Bill Gross said it would happen in "at least three to four years, if that, but the market will recognize the problems before the rating services - just like it did today." Just as in the case of a consumer, a lower credit rating would mean that the government would pay higher rates to borrow money. This is logical in that an investor requires more return for the additional risk of possibly not being paid on their investment. This would most likely result in interest rates rising on not only Treasuries but also mortgages. As warned last week, it is a great time to take advantage of rates at the current levels to avoid the uncertainty of where mortgage interest rates will be in the future. For more news and information on mortgage rates, or purchasing a home visit www.ToMortgageServices.com