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September 10th, 2008

Narrower Spreads Could Translate Into Lower Mortgage Rates

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Good news from Fannie Mae that could lead to lower mortgage rates:

In its first issue of new notes since the government took the company into conservatorship over the weekend, Fannie issued $7 billion of two-year benchmark notes at a spread of 70 basis points, or 0.07%, over the comparable Treasury security.

That’s down sharply from the spread Fannie was paying only last week, reflecting reduced fears about the company’s capital position and increased demand for the mortgage-backed securities Fannie and its sibling Freddie Mac (FRE) deal in. On Aug. 13, for instance, as shares in Fannie tumbled amid worries about the company’s capital position, Fannie priced an offering of three-year benchmark notes at a spread of 122 basis points (or 0.122%) above Treasurys.

The reduced spread is good news for the housing market, because narrower spreads translate into lower mortgage rates, which make houses more affordable.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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