Current Interest Rates – Week of 9/4/12

Bernanke and the Fed are ready to launch QE3, targeting longer term securities.  While this may help keep rates low, find out how increases to the “g-fee” charged by Fannie/Freddie will increase costs for consumers across the board.

What happened with interest rates last week?

Mortgage backed securities and interest rates finally broke out their tight trading range and are attempting to make a run towards historic low interest rates.  Bernanke’s speech on the Economic Outlook and Monetary Policy in Jackson Hole, Wyoming was watched around the globe to see how the Fed may try to stimulate the economy.  While further easing through QE3 was mentioned, it was yet to be announced.  Nonetheless, even a mention caused stocks, bonds, gold, and oil to rally based on the strong likelihood that QE3 will be announced.  It may come in the next Fed meeting held September 12-13th or they could continue to hold off.  The purpose of QE3 is to stimulate the markets and just a rumor has already allowed them to accomplish their goal.  Granted, it may not last long, but it allows the Fed more time to keep QE3 in their bag of tricks to stimulate the markets when the time is right.  The market closed heading into the holiday weekend with a rally of over 50 basis points on Friday, closing at the best levels in over a month.

Other big news last week came from Fannie Mae and Freddie Mac as they begin to implement higher “g-fees” or guarantee fees on all of their loans.  What’s a “g-fee”?  Starting last year, Fannie and Freddie started to impose fees on all of their loans as a way to start to privatize some of the capital that backs their loans.  Fannie/Freddie are largely backed by government capital through the Federal Housing Finance Agency (FHFA).  Acting director, Edward Demarco said “These changes will move Fannie Mae and Freddie Mac pricing closer to the level one might expect to see if mortgage credit rrisk was borne solely by private capital.”  Noble goal, but the “g-fees” are assessed to all Fannie/Freddie loans and will ultimately be incurred by our homeowners and we are far from seeing FHFA be replaced by private capital.

The key points to take from last weeks announcements are that even though the fundamental Bonds/securities that drive interest rates may be manipulated through Fed stimulus (QE3), there are other factors at play (g-fees) that are increasing the costs for home owners applying for a new mortgage loan.  If rates decrease but costs increase, where does that put us?  Possibly right where we started.

What’s coming up this week on the economic calendar and what’s the impact on interest rates?

The ISM Manufacturing Index was released this morning at the worst levels in over 3 years.  The results have caused stocks to open the week lower and allowed Bonds and Mortgage Backed Securities to hold on to Friday’s gains.

On Thursday, the European Central Bank (ECB) is scheduled to deliver their rate policy going forward and will also discuss a rumored Bond buying program.  The program would allow the ECB to purchase Bonds and help alleviate some of the risk of Bonds of the suffering countries.  *Lookout ECB, we’ve tried this here.  Please see paragraph above about FHFA and Fannie/Freddie.*

The big news this week comes with Friday’s Jobs Report.  A signal for all markets, the Jobs Report can be a catalyst for big moves in stocks and Bonds.  Thursday’s ADP Employment Report will provide some insight into what may be in store for the Jobs Report.  Good Jobs numbers, look for stocks and the S&P to rally towards their multi-year highs around $1420.  Bad Jobs numbers, stocks will suffer a further decline while mortgage backed securities and interest rates set the stage for another run at historic levels.

Here’s our strategy for the days and weeks ahead…

Bernanke’s speech in Jackson Hole on Friday brought a nice boost to mortgage backed securities and interest rates.  We are currently recommended that our client closing in the coming days-weeks lock in their rate to secure the recent savings.  We will be watching the news out of the ECB’s potential bond buying program.  If this is seen to signal further risk for the economies in the EU, we could see our mortgage bonds become more of a safe haven, shifting our client strategy to float with the hope of lower rates to come leading into the Jobs Report.  The market could see lots of volatility over the coming weeks and months.  Be sure that you or your clients are in a relationship with a lender that understands and monitors the market closely.

We maintain an ongoing dialogue with our clients about the market and interest rates throughout their financing experience so we can take advantage of the lowest rates when they present themselves. We all want the lowest rate, and the best way to ensure that you get the lowest rate, is to build a relationship with your mortgage planner, so they can best advise you on when to lock in your rate. Call us today for a complimentary mortgage review or Apply Online.

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+Patrick Glaros empowers people to find their best home loan option. Through planning and education, and a goal-oriented approach, Patrick and the team at Dallas Mortgage Planners have one common goal: Help clients make an informed decision to choose the best home loan for their unique situation. Find other articles written by Patrick.

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