The US government today took a major step toward increasing investors confidence in the US mortgage market by utilizing the power Congress provided the Treasury Department and the new government sponsored enterprise oversight agency known as the Federal Housing Finance Agency FHFA.
Some observers believe that this move may cause interest rates to go down. Because buyers of government sponsored enterprise investments have demanded higher than normal returns on their investments due to a lack of confidence in these entities, which as been pronounced by speculation that the GSEs may collapse. Others feared nationalization of the government sponsored enterprises, which presents a different sent of implications. What happened today stops short of nationalizing the government sponsored enterprises, but it does dilute shareholder equity in the GSEs.
The speculation as to what will happen with the government sponsored enterprises and its concern of their potential collapse, consolidation, nationalization, etc. The certainty of the situation is thought to be a very good thing. Investors will likely be willing to invest in mortgage backed securities under the new scenario meaning with the explicit guaranty of, rather than the implicit guaranty of, the credit of the US government at rates similar to the past. This could be great news for Mortgage rates, construction loan rates, new home construction and refinancing.
Recently investors have demanded spreads of 2.25% to 2.45% over treasuries, whereas the normal spread historically has been 1.25%. That means agency interest rates may have been inflated recently by as much as 1.2%. Well have to see if this move causes the reaction of international investors feeling comfortable enough with this move to accept a 1.25% spread over treasuries like they used to. Logically they should, so long as these investors believe in the underlying credit worthiness of the US government.
If we do see a rate decrease of 100 to 120 basis points we should see a surge in business. We will not expect to see the GSEs back off of the recent underwriting guideline tightening; in fact, we expect to see underwriting guidelines continue to tighten in reaction to a recent revelation that the foreclosure crisis is now spreading further into high quality credit borrowers. So, no relief expected soon on underwriting guidelines, but potential significant relief in terms of interest rates.

Similar posts: diet fast plan slim