Hilde's Mortgage Blog

Here is a word from Residential Mortgage LLC

After Bernanke and Paulson’s comments over the last several days, we have had a number of inquiries as to the direction of interest rates.

My initial observation is that no one can predict interest rates as they are subject to many influences, from the rate of inflation, to the value of the dollar, to current economic conditions, the direction of the stock market, etc.

More specifically, people have asked where the Treasury is with their announced program and how will it unfold. The Treasury Department already has the authority to buy billions in mortgage backed securities (MBS) and to-date has not done so to any large extent. How much would the Treasury have to buy to push rates on a 30 year MBS to 4.5%? To give you some perspective the Treasury’s plan to buy $500 billion of MBS’s did cause rates to drop (for a couple hours) before interest rates finished flat this morning.

This morning conventional rates were at 5.25% which we last experienced in June 2003. Due to the change in administrations any coordinated purchases by the government, if any, will probably not occur before January 20^th.

In summary, what we have is a program that doesn’t exist, has no qualifying parameters (will it apply to all loans or just purchases?), no time table for implementation and at best will probably drop rates 50 bps from their current level.

We must also consider that never before has the government issued so much new debt and it’s hard to imagine the mortgage market sustaining a prolonged move to lower levels in that environment.