Keep Your Eyes Peeled: Three Important Developmentsby Tim Manni
Good morning everyone. Since there are several important developments currently underway that are likely to impact you directly, I thought I would do things a little different this morning. Instead of writing separate posts on each development, we’re going to delve a little into each. Each of the following are likely to impact not only the housing markets but the overall economy as well.
Fed Leaving the Mortgage Market?
First and foremost, the Federal Open Market Committee (FOMC) is set to wrap up a two-day meeting this afternoon. The release issued after the meeting’s conclusion could confirm (or not) the expiration date for the Fed’s MBS purchase program which has served to keep conforming mortgage rates at rock-bottom for over a year now.
As most of you know, HSH.com has deeply considered what may happen to rates when the Fed’s program concludes. With the MBS program slated to expire on March 31, 2010, the FOMC will have only one more scheduled meeting just before that date. If the Fed waits until then to unveil their decision, it would likely spur only more confusion and unrest. Keep your eyes peeled this afternoon for the Fed to confirm that their highly-successful program will expire when originally planned.
For more on the Fed’s influence on mortgage rates, be sure to read HSH.com’s 2010 Outlook for Mortgage Rates and the Mortgage Market.
Will the CFPA Make an Appearance?
Moving on, President Obama’s State of the Union Address this evening is expected to focus largely on the U.S. economy. The administration’s ever-changing set of priorities and policies has left investors confused, consumers agitated and Wall Street bitter. The president is likely to urge bipartisan support in tonight’s speech, as well as prodding the American people for their continued support. Yet, with Federal dollars flying out faster than they’re coming in, and with multi-billion-dollar programs yielding little results, support from many angles is wearing thin.
Keep your eyes peeled for the president to use tonight’s address to touch more on the pending Consumer Financial Protection Agency (CFPA). The CFPA is a game-changing initiative that’s designed to, you guess it — protect consumers, but probably throws another monkey wrench into the financial system. This initiative is another example of how the current administration is trying to shake up the old ways by creating new agencies and policies to better financial markets (they’ve had little success so far).
No More Fannie and Freddie?
Lastly, Barney Frank, chairman of the House Financial Services Committee, surprised many of us at the end of last week when he proposed to eliminate Fannie Mae and Freddie Mac in their current form:
“The committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance,” said Frank, once a big proponent of the firms. “That’s the approach, rather than a piecemeal one.”
We’ve known for sometime that a shakeup was coming to Fannie and Freddie — who guarantee more than $5 trillion in U.S. residential mortgages — yet, I for one, didn’t foresee Mr. Frank making such a declaration. Fannie and Freddie have been hemorrhaging money for some time now, and recently President Obama offered unlimited financial support to the GSEs, so it’s a little surprising that they would be eliminated.
Earlier this month we speculated that more modifications in the form of large principal reductions for borrowers in the Federal program may be the reason behind F&F’s unlimited funding. Since Fannie and Freddie entered into conservatorship, the previously quasi-government companies have grown more and more involved with Washington’s housing efforts.
With the Fed likely to exit the mortgage market in about two months, keep your eyes peeled for Fannie and Freddie to step in and continue the effort to keep conforming rates low by ballooning their already bloated portfolio of loan holdings, which was expanded last month to $810 billion from $690 billion.