Why are mortgage rates going up as oil prices and the economy are going down.

This is a note my good friend and excellent lender over at Countrywide sent ot me today. Read it over.
The activity in Mortgage-Backed Securities (MBS) market - and other financial markets - has been very unusual this month. The Fannie Mae Required Net Yield has already made two round trips from about 5.70% to 6.60% over the past few weeks, displaying a level of volatility rarely seen. Under normal market conditions, the vast majority of the significant rate movements are the result of fresh economic news. This month, however, it has been common to see large rate movements unconnected to any news announcements, for reasons discussed below. One reason is that the credit crisis has forced many investment funds and financial institutions to reduce their leverage and raise capital. In many cases, these big holders of MBS are selling assets across their portfolios.This explains why MBS, stock, oil, and other markets have frequently all been falling on the same days. The fundamental economic data clearly supports lower mortgage rates. Global economies are slowing, oil prices are down, and expectations for future inflation are moving lower. As long as these investment funds are forced to sell assets, however, there will continue to be upward pressure on mortgage rates. How long it will last is one of the biggest questions facing investors today.

Rates moving higher this week has frustrated some buyers with all the talk about the Fed cutting rates. The Fed has control over short-term rates, which they are expected to cut by .50% today at 2:15pm. It is very common to see mortgage rates rise when the Fed cuts short-term rates. A second factor is that many investors are seeking to reduce the level of risk in their portfolios. They are buying Treasuries, mostly shorter-term,which are considered the safest and most liquid investment. These investors are generally not turning to MBS, and MBS prices have performed worse than Treasuries this month, meaning that the spread between mortgage rates and Treasury rates grew wider. The question is not whether investors will get their money back, but rather when they will get it back. MBS yield more than comparable Treasuries because MBS have prepayment risk and Treasuries do not.

The recent volatility and uncertainty in financial markets makes it more difficult to evaluate the prepayment risk, so investors are demanding higher yields and thus mortgage rates have gone higher.

We're at the top!!!

Keller Williams has risen to the top. We have been top in sales in the Savannah Multi-list for each of the months June, July and August. In an increasingly tough market our support systems and education have put us ahead of all the companies in Savannah. I am excited to be a part of this company.

Fannie and Freddie in the Spotlight

My friend over at Countrywid mortgage Mike Ca[puto sent this to me today and I wanted to share it.
While there have been concerns for months about the size of losses at Fannie Mae and Freddie Mac due to the credit crisis, the troubles at the two firms increased significantly during the week. Monday, a report from an investment bank suggested that the two firms would have to raise enormous amounts of capital to comply with revised accounting rules. Thursday, Former Fed member Poole claimed that the two firms are insolvent under standard accounting rules and warned that a government bailout might be needed in the future. Friday morning, there was speculation that the government was considering a takeover of the two firms.
The response from government officials was swift. The director of OFHEO, Fannie and Freddie's regulator, reported that they both remained "well capitalized" based on their charters. On Thursday, Fed Chief Bernanke and Treasury Secretary Paulson attempted to reassure investors that the financial system was sound. Since Fannie and Freddie are government-sponsored enterprises, and together account for about 70% of mortgage originations and hold $5.3 trillion in home-loan debt, most investors believe that the government would step in to prevent the collapse of the firms. Friday, Treasury Secretary Paulson stated that he sees no bailout on the horizon for Fannie and Freddie and that the government is working to support them to carry out their "important mission" in their "current form".
Bottom line, despite the negative headlines, comments from OFHEO, the Fed, and the Treasury eased investor concerns. While the stock prices of Fannie and Freddie plunged during the week, investors apparently were comfortable that the firms' guarantees of the mortgage loans were not at risk, and mortgage rates ended the week moderately higher.
Next week should be interesting if nothing else. As a reminder, FHA risk-based pricing takes effect on Monday.