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July 20th, 2009

“Rates Fall, then Firm”

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According to the latest issue of HSH’s Market Trends Newsletter, “Rate Fall, then Firm,” the Fed’s sponge-like actions, absorbing the excess supply of mortgage-backed securities and Treasuries when and if it forms, has served to keep interest rates low.

“The Fed is providing support to various financial markets, including the mortgage market, with purchases of MBS and Treasury debt alike. Earlier this year, there were rumors pervading the markets that the Fed would engineer 4.5% 30-year fixed-rate mortgages; we never put any stock in them. With the release of the minutes, they revealed for the first time that there is no specific target for rates in mind, but rather the Fed seems to be acting as a sponge to absorb excess supply in those markets when and if it forms, serving to keep interest rates low. The minutes noted that ‘The asset purchase programs were intended to support economic activity by improving market functioning and reducing interest rates on mortgage loans and other long-term credit to households and businesses relative to what they otherwise would have been. But the Committee had not set specific objectives for longer-term interest rates…’. At the same time, they also revealed a steadfast hold to the objective of the established program of measured buying of these assets, and that there would be no knee-jerk adjustments to try to address short-term fluctuations in market interest rates.”

“The Fed can certainly claim success in helping interest rates to remain low. Certain stresses in the markets a few weeks ago caused a quick run-up in rates, only to see them retrace that path to a substantial degree.”

“The overall average for 30-year fixed-rate mortgages — detailed in HSH’s Fixed-Rate Mortgage Indicator — declined by four basis points (.04%) during the week ending July 17. At 5.66% we remain quite near the levels seen before June’s flare in rates sent refinancers scrambling. The FRMI’s 5/1 Hybrid ARM counterpart slipped by five basis points, closing at 5.07% for the week.”

Click here to continue reading “Rates Fall, then Firm.” 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

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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