Treasury Saber Rattling and Rates in the low 5% range

Big actions continue to impact Mortgage-Backed Securities, and first, let's talk about the Treasury and their desire to jump start housing with 4.5% mortgage rates. I know this has the media all a-twitter. It was a story that broke in Thursday's Wall Street Journal article (click here) and was picked up in most newspapers on Friday with quotes like this from the NYT News Service "At the Treasury Department, meanwhile, top officials continued to work on a plan to boost the housing market by subsidizing 30-year home mortgages with rates as low as 4.5 percent - a level that homebuyers have not seen since the early 1960s."

Perhaps you have seen some renewed interest from home buyers triggered by this news bit. The key is that hope for a program from the government is nice, BUT every other individually targeted program they have created has had income and property limitations that make them more hoopla than cash-in-the-pocket, AND rates as they stand right now are fantastic. In some cases, people will be holding out to get the 4.5% and if so, you should help them understand that if and when a program is announced, will it actually fit them and their financing goals? Remember also that Obama is pushing for his own $500B stimulus package and he won't let Treasury undermine his program, so the jury is still out on whether this really will become something broadly available.

In the meantime, the real story is that rates have improved and are at a level that should bring would-be buyers to the table, so get out and let them know. We are seeing conforming loan amount rates into the low 5% range right now. This large step forward is still based on two things that we don't see going away anytime soon. First, inflation is the arch-enemy of long-term interest rates and it has been in check with monthly numbers at 0% and full year numbers down to 2% and shrinking. This is good news and should improve. Second is the supply of MBS investors willing to buy MBS. Here is where rates really improved on Tuesday before Thanksgiving. As I described last week, the Treasury Dept. announced their intent to buy up MBS to the tune of approximately $600B. And while Treasury hasn't actually started buying, the relief has been tangible as investors are coming back in, knowing that another buyer is on its way. If we do see rates improve broadly to the 4.5% rate, it will be based on these two economic factors: inflation and supply and demand.

The news of the past week was unemployment rates of 6.7% and job loss numbers at 533,000 plus corrections to prior months. Those who buy futures in Fed Funds rates immediately moved to an 80% likelihood of a 0.75% drop in the targeted Fed Funds rate next Tuesday the 16^th down to 0.25%. This would also see the Prime Rate drop to 3.25%. In similar moves already taken in Europe, the European Central bank or ECB dropped their rate 0.75 and Sweden came down 1.75%. The Bank of England dropped their rate 1.0% to the lowest level it has been since 1951. Oil started the day at $41/bbl today (remember it was $147/bbl on July 11). We will see wholesale inflation info on Friday with the PPI announcement and retail prices that same afternoon.

What does that mean to you, your friends and clients? Rates are now better than in years. Funds are more available and the timing is right. Signet Mortgage is ready to help you put deals together.

We'll keep you posted and you keep helping people reach their dreams. Make it a great week! - Dave