Straight Stats
Mortgage interest rates improved on the week on the Fed’s FOMC announcement of Operation Twist. With Operation Twist, the Fed will purchase $400 billion of Treasuries with remaining maturities of 6 years to 30 years and sell Treasuries with remaining securities of 3 years or less. The Fed also announced that it will reinvest principal payments from its holdings of agency debt and agency mortgage backed securities into agency mortgage backed securities to help support the mortgage markets. Furthermore, the Fed commented that there are “significant downside risks to the economic outlook, including strains in global financial markets.” On the week, the yield on the 10 year Treasury has fallen almost 30 basis points to its current 1.779% yield. Economic news of note included August Housing Starts, which were weaker than expected. August Building Permits and Existing Home Sales were better than expected.
Commentary
Financial markets seemed to react badly to the Fed’s announcement of two new but minor operations, net-neutral as to new money. Some say the Fed’s grim statement of risks did the damage; others claim it was the absence of a big policy move (more QE). There’s a lot more to this week than the Fed. The best case for Europe is a nasty recession — if austerity and unity prevail. If not, they’ll have a sharper-deeper affair in a scramble back to local currencies. Also, markets suddenly get the odds in favor of a new US recession. 10-year T-note to 1.75% from 2.07% in a week. Mortgages at yesterday’s low (up .125% now): if you are 670 Fico, low equity, 4.25%; if you are 800, 50% LTV, 3.875%. Whatever you are, if you don’t have a vanilla job, you ain’t nuthin’.
Gale Boonstra, CPA, MBA, is a Senior Mortgage Consultant at Premier Lending Group in Boulder. Feel free to contact her at 303.302.3932 or gboonstra@pmglending.com.
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