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Obama Beltway Affects Mortgage Rates! What if $1.2 Trillion is Coming?

By
Mortgage and Lending with Signet Mortgage

Gung hay fat choy!  Wishing you prosperity and good luck in the New Year!

Rates continue to be the focus of discussion and while the bond market has stayed the course, mortgage rates have crept up just a bit, but still very near the lowest rates in our lifetime.  The upward move has been more of a business decision at the banks rather than based on costs of funds, building in some cushion.  This has been attributed to high volumes of loans in the process right now.  Banks can control the volume with pricing.  The answer for you, your friends and clients is to recognize that we are still within a quarter-point of the very best rates we've ever seen and to plan on longer lead times to loan closing and you'll be fine. 

This week, Tuesday and Wednesday are the meetings and announcement from the Fed's Open Market Committee that sets targeted fed funds rates.  While no one is expecting the current target of 0 - 0.25% to move, it will be interesting to see what they say about inflation.  All of the current indicators still point to little or no inflation, but the unprecedented levels of stimulus and deficit spending underway and being discussed raises the specter of a significant upcoming inflationary cycle.  At some point the fed will have to act to prevent the inflation dragon from raising its head.

Inside the Obama beltway we are expecting to hear senate confirmation of Treasury Sec'y Geithner today or tomorrow.  He spoke at length last week about the stimulus package returning to the "Bad Bank" approach, where the government creates a "Bad Bank" for buying-up tainted real estate loans.  This would free up credit further with a bigger favorable effect on the commercial lending environment.  Banks currently are hording capital and not lending for fear of further drops in their real estate loan portfolios which would cause them to fail regulatory capital ratios.  If they can stabilize the values of mortgage assets, they'll have the ability to use their capital to create more loans.  This could be a good idea, but it will be interesting to see if the price tag to make it work is less than $1.2 Trillion.

In addition to the FOMC meeting, we'll see existing and new home sales reports and final 4Q GDP data this week.  We'll also be watching oil which continues to be $100 below the high of last July 11th of $147/bbl.  The word on the street is that the overproduction of the last month has nearly filled global storage capacity and prices may drop further, but temporarily.  Some are seeing $30/bbl in the near term. But watch for oil to shoot back up above $50/bbl.  This would be an early indicator that people believe a recovery is real.

Signet Mortgage is ready to help you put deals together.   Introduce us to someone who could use knowledgeable, professional mortgage advice.  We'll make sure you look good for the referral.  Make it a great week!   - Dave

 

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Comments (1)

Tony Grego, 317-663-4173 #1 Trade Association for Alternative Inv
REISA - 317-663-4173 - Indianapolis, IN

Excellent post Dave.

Thanks for the great information

Tony

Jan 27, 2009 10:26 AM