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Monday Morning Mortgages>
Monday Morning Mortgages
January 25, 2010
Rates
Last week the stock markets took a tumble of 437 points dipping mortgage rates and bond yields, so traders expect some recovery this week. But the continued nervousness about our economy and our banking system that caused stocks to sell off and caused bonds to rally and mortgage rates to drop. Mortgage traders saw origination pick up a little, as folks locked when rates were dropping. Some believe that rates may stabilize this week, perhaps creep a little higher, with yet another Treasury auction to deal with selling $118 billion in debt. ($44 billion in 2-yr tomorrow, $42 billion 5-yr Wednesday, and $32 billion in 7-yr. Thursday.)
Barney Frank’s Big Idea (Rob Chrisman 1-25-10)
Barney Frank once again made headlines last week with the statement that the House Financial Services Committee will recommend doing away with Fannie Mae and Freddie Mac and “rebuilding the U.S. housing-finance system from scratch”. “A whole new system of housing finance," although most analysts feel that there will be continued government involvement. Given that they set the standards for the mortgage industry, own or guarantee half of the $11 trillion in outstanding home mortgages, and attract huge amounts of capital, it is hard to imagine replacing them with several private investors whose cost of capital would be much higher. No one expects much to happen for a very long time on this issue.
Some Facts about the “Fed”?
The term "The Fed" encompasses many entities. It meant something different to Al Capone, for example, than a bond trader. (At least, I hope so.) For example, the futures market believes that there is almost a 90% chance that "the Fed" (Federal Reserve branch of the US Treasury) will keep Federal funds rates somewhere between 0% and .25% through the end of April.
Aspects of the Fed have different responsibilities with the goal of controlling inflation, the flow of money, and unemployment. The Federal Open Market Committee is responsible for open market operations, which influence "the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The FOMC meets eight times per year, with one of these meetings starting tomorrow, where it reviews "economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth." Although the minutes (released later) list numerous attendees, "the FOMC consists of twelve members--the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis."
The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. The FOMC does not set mortgage rates, but changes in the federal funds rate often affect other short-term interest rates, foreign exchange rates, long-term interest rates, the amount of money & credit, and mortgage rates.
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