Markets, Rates Improvedby Tim Manni
According to the latest issue of HSH’s Market Trends Newsletter, “Markets, Rates Improved,” things looked quite a bit better last week than they have in previous weeks.
“Mortgage rates managed a little dip downward. The Federal Reserve’s program of buying up mortgage-backed securities from Fannie Mae, Freddie Mac and Ginnie Mae (FHA) is serving to keep rates fairly stable even as the government continues to issue considerable volumes of new debt to cover its various stimulus and spending programs. Any declines in mortgage rates could be the result of some minor increase in investor appetite for such investments, but we think it’s more likely that demand-generated pricing premiums are easing as earlier cascades of refinancing requests have passed. In times of unmanageable volumes, lenders may increase rates somewhat in order to temper demand or to enhance the potential profitability of making a loan. After all, there’s little reason to cut prices when the store is full of customers already.”
“Profitability is key to getting banking back on its feet. This week, announcements that Citibank, Bank of America, and JPMorgan all reported profits during the first two months of the year surprised the markets and lent some hope that the trend of perpetual losses may be coming to an end, even if there may still be more troubles ahead. As the Federal Reserve makes money available to banks at extraordinarily low rates while retail loan rates remain firm, the ensuing wide “spreads” between those two seems to be finally having the necessary effect.”
“The potential to make profits is the linchpin to a lender’s desire to make any loans at all instead of hoarding cash. Lowering the Federal Funds and Discount rates (not to mention all the other new facilities for getting funds) can serve to enhance the profit of lending, inducing more lending; this is desirable even if all the benefits of low interest rates aren’t fully passed all the way down to the consumer immediately.”
“The overall average for fixed-rate mortgage money — gauged by HSH’s FRMI — eased by eleven basis points to close at 5.69% for the week, its lowest level in just about two months. The FRMI’s 5/1 Hybrid companion drifted six basis points lower and now sports an average 5.42%, better than a one-year low. Conforming 30-year FRMs eased to 5.20% with 0.31 points, while 30-year non-agency jumbos fell by eight basis points.”
Click here to continue reading “Markets, Rates Improved.” 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.