Will the Housing Bill Lower Rising Rates?by Tim Manni
HSH remained ahead of the curve this week (we’ve been cited in numerous publications for the past few days) documenting the rise in 30-year FRMs. Concerns over inflation (the Consumer Price Index (CPI) rose 1.1% in June, and nearly 5% from a year earlier) and poor economic performance have contributed to the rise in mortgage rates. As lenders, as well as the quasi-government agencies Fannie and Freddie, flood the markets with bonds for sale in order to raise capital, demand has been drowned by supply, forcing rates to escalate to attract investors.
So, can the housing rescue bill help to lower mortgage rates? Unless Fannie and Freddie made an agreement with Treasury Secretary Paulson that we don’t know about, there’s nothing explicit in the bill that suggests it. Remember, as part of the bill is structured, it remains merely a lifeline for Fannie and Freddie, not a strong shift in their policy or practice, only an improvement:
The bill also strengthens regulation of Fannie and Freddie, and passage of the bill should make it easier for the mortgage giants to raise additional capital, according to James Lockhart, director of the Office of Federal Housing Enterprise Oversight. Freddie has pledged to raise $5.5 billion in additional capital.
The access to additional capital should allow Fannie and Freddie to purchase more mortgages. With the market already flooded, it only makes sense that they would have to jack up interest rates to attract some takers.