December 22nd, 2008

Mortgage Rates Turn Back the Clock



The latest issue of HSH’s Market Trends Newsletter, “Mortgage Rates Turn Back the Clock,” breaks down the factors that allowed mortgage rates to drop to historic lows, as well as the ensuing effects:

“In any number of ways, the Federal Reserve was to thank for the drop in rates, but mostly because of the program announced on November 24 to support the mortgage markets. This week’s change in the Federal Funds target rate wasn’t meaningless in this regard, but regular readers of our work know that the Federal Funds target rate and long-term fixed-rate mortgage (FRM) rates have little to do with one another, at least directly.”

As well as mentioning the $600 billion program in the statement which accompanied the close of their two-day meeting, “the Fed noted that it was considering other more novel ways to influence rates, such as directly purchasing Treasury securities, as well as still other options.”

“The downdraft in mortgage rates was also influenced by the ongoing rally in longer-term Treasury issues, particularly the 10-year Treasury. The yield on that instrument broke into record low territory about a week ago and has continued to trend downward, flirting with a 2% level on a couple of occasions. While the relation between the 10-year Treasury and fixed mortgage rates has become fractured and tenuous over the past year, the benchmark instrument does still wield some influence on other market-based interest rates.”

In addition to discussing last week’s movement in mortgage rates, as well as deciphering a series of economic data, Mortgage Rates Turn Back the Clock also brought to light an audience the government continually fails to address: the good-credit, responsible homeowner who is “inadvertently underwater on their loans due to poor market conditions:”

“These borrowers cannot sell; they cannot refinance; they are well and truly stuck. Worse, the only incentives for them in the markets are perverse ones, since no help is available until these borrowers fail (or nearly fail). With a fair bit of money left in the TARP — but mere days left to employ it under the present administration — we believe that any new focus should be to help these folks become more solvent. As home prices continue to decline, this problem worsens every day. Time’s a-wasting.”

To continue reading the latest issue of Market Trends click here. HSH’s free weekly Market Trends Newsletter, an in-depth analysis of various financial markets of the week prior, is published every Monday. Email subscribers — receive it in your inbox by Friday night, so sign up today! Also, be sure to check in with our Market Trends blog for all news relating to any weekly shift in mortgage rates.

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About the HSH Blog'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 and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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