Mortgage market and interest rate update for Tuesday, December 23rd, 2008

Rates had fallen off the cliff but are back up on it - that is if you consider the cliff 5% or higher. We are seeing a run up in rates right now without the typical amount of price change from mortgage backed securities for a few reasons and the first big one is rate renegotiations from previously locked loans. This sentence from Ratelink describes what is happening, "These relocks often cost the company hard dollars when they are unable to fill forward commitments. Some companies are taking this opportunity to move rates higher to allow some of the pipeline to clear and book some profits. We both know a loan has no value to us until it closes. The good news is rates remain very low." Is bailout money being used for people to purchase homes? No. But, that's not exactly what is was supposed to do. The plan changed because Paulson realized the banks were hoarding the money so they aren't buying troubled assets to drive rates down. Then, they announced the Fed would purchase mortgage backed securities and this move drove rates down. Paulson has been very active and made some shrewd moves to accomplish what he is trying to accomplish because there have been unintended consequences from the first round of TARP money. I am convinced there will be a new stimulus package passed by the new administration that will strongly address housing issues more so than the last stimulus package. Once the Fed starts buying mortgage backed securites we'll see how the market reacts and that could drive rates a bit lower than they are now but remember, the market already knows this is happening so there is no reason to think that once it starts we'll get any sort of surprise.