A Very Bad Day To Be Betting On Low Mortgage
A Very Bad Day To Be Betting On Low Mortgage Rates
May 27 2009 DETROIT MI It’s an unsettling feeling watching a market in freefall. You watch it drop drop and drop some more wondering and hoping that it’ll level off. When it doesn’t panic and paranoia creep in and your stomach starts to tighten.
I’m sure a lot of bond traders on Wall Street were going through this as one of the WORST days for Mortgaged Backed Securities played out. Take a look at the chart below:
NOTE: this chart reflects MBS prices which are the inverse of interest rates.
As if to set the market up like a pool hustler the day started with a bit of improvement after a bad day yesterday. Then the market kept dropping and dropping and dropping etc.
What’s this mean for interest rates?
Well you’re looking at rates being worse than they were at the start of last week maybe even higher.
What caused the sell off?
It was an accumulation of factors plus mob hysteria thrown in for good measure. The government’s auctioning off a slew of Treasuries this week consumer confidence shot up last month and was reported yesterday housing sales are up and the market was just nervous all this will lead to inflation.
The question is is this a reset of the markets or will the next round of bad news drive rates back down? We also have the Fed to watch and see how team Bernanke will react to this. The Fed pledged 1.25 trillion dollars to buy MBS and keep mortgage rates around 5. They’ve only used up about half of this amount. Will they go “all in” and blow the rest on a gamble to call Wall Street’s bluff?
Stay tuned.
About the writer: Drew Sygit is President of The Lending Edge and holds mortgage industry designations CMPS CMC CRMS CMLO CALO has an MBA and is an approved industry instructor. Hes spoken for HUD written articles for the Financial Planners Association of Michigan and the Oakland Real Estate Investors Association presented for the Michigan Associations of CPAs has written numerous industry articles and is a mortgage industry advocate for loan originator licensing and consumer education. He can be reached at 2483563739 dsygitTheLendingEdge.com or read his blog: http://drewsmortgagenews.blogspot.com.
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