Mortgage rates have jumped in the waning days of May, 2009. This meteoric rise is striking fear into the hearts of home buyers, folks looking to refinance, and mortgage industry professionals. I noted that three people triggered this collapse and suggested that locking-in a mortgage rate tomorrow, might just be a bit hasty:
What’s this mean to you? Locking in your mortgage rate is probably a hasty decision right now. Expect Ben Bernanke to speak by Friday in his gentle, reassuring tone. Tim Geithner should be front and center, calming down those impetuous bond traders tomorrow. Mortgage rates should drift down by the end of next week.
The Chinese, Tom McClintock, and Bill Gross are all correct; the US government’s actions are inflationary and destructive. They are all correct but early. The time to panic will be this fall; hopefully you’ll do what you need to get done by then.
Why am I, a self-proclaimed “free-marketeer”, banking on the Government to bail us out of this little mess? If you’re a regular reader of Mortgage Rates Report, you know that there are two sides to me:
1) conspiracy theory loving member of the Vast Right Wing Conspiracy (who is unhappy with our nation’’s course in fiscal policy) and …
2) buttoned-down, former Wall Street securities broker. The latter side of my personality is more interested in the analysis of Government policy rather than the former side’s opinion. Lend your ear to the former securities broker rather than the crack-pot Libertarian.
What this means to you, the potential home buyer or mortgage shopper, is that my opinion, as far-flung as it may be at times, is subordinate to my analysis of the situation. I tend to hold a contrarian opinion to the traditional, mortgage industry, knee-jerk reactions to market movements. While most originators scream “Rates are going up ! “, I want to be looking beyond the next 48 hours and trying to discover what might happen next week and next month.
I said, earlier tonight, that the Federal Reserve Bank has a boatload of money shelved to spend on the purchase of treasury bills and mortgage-backed securities, in order to provide access to cheap capital during the recession. While I’ve never met the man, I have been reading Fed Chairman Ben Bernanke’s position papers, about the Fed’s role during The Great Depression, for years:
Despite the varied theories espoused by many establishment economists, it was none other than the Federal Reserve that caused the Great Depression and the horrific suffering, deprivation and dislocation America and the world experienced in its wake. At least, that’s the clearly stated view of current Fed Chairman Ben Bernanke.
I don’t expect him to change his posture because China waived its economic saber at one of his subordinates.
and now…
Here comes the excuse spin for MASSIVE Fed intervention over the next few days:
The Federal Reserve may step up asset purchases to prevent its balance sheet from contracting until policy makers are convinced an economic recovery has taken hold, Fed officials and analysts said.
Demand for some of the Fed’s emergency programs has waned as the grip of the credit crunch loosens, with loans to banks shrinking 38 percent since Jan. 1. The main tool to keep the central bank’s holdings from falling from the current $2.1 trillion would be more purchases of Treasuries, said analysts including former Fed Governor Laurence Meyer.
Demand for Fed loans has waned so it need more assets for its balance sheet (rather than reducing its liabilities). What this means is that they intend to inject more liquidity into the system because they don’t see an economic recovery underway… just yet. The unexpected jump in mortgage rates could stall the de-leveraging of the American consumer before fiscal policies could gain traction. Make no mistake about it; the Fed wants everyone to have a shot at a 4.5% mortgage rate and will use all of the arrows in its quiver to get those mortgage rates down…
…until the close to a billion arrows left are all gone.
Don’t panic just yet. I’m sometimes early in my predictions but I think Bernanke’s going to be writing some big checks in the next 7-10 days.
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