Nashville, Franklin and Brentwood TN Real Estate

Brentwood TN Real Estate: Finance Market Update July 21st, 2008

Brentwood TN Real Estate: Finance Market  Update July 21st, 2008
Brentwood TN Real Estate

Mortgage bond prices fell considerably applying upward pressure on mortgage interest rates. Trading remained volatile. Energy prices subsided a bit but not enough to overshadow higher than expected inflation data. Consumer prices rose 1.1%, higher than the expected 0.7% increase. Mortgage bonds sold off following the release Wednesday and continued to fall the rest of the week. Fannie Mae and Freddie Mac bailout rumors turned out to be true. Unfortunately, the details remained unclear and left mortgage investors still on edge. For the week, interest rates on government and conventional loans rose by about 2 discount points or 1/2% in rate.

Leading economic indicators data Monday will set the tone for trading next week. Be cautious heading into the data releases.

GSEs

Government sponsored enterprises (GSEs) are financial services created by Congress. Two of the most important GSEs in the mortgage industry are Fannie Mae and Freddie Mac. These corporations are designed to make credit available to targeted borrowers in an efficient manor. Fannie and Freddie are privately owned. However, recent efforts by the Treasury and Congress may now blur the ownership.

The credit crisis has resulted in Fannie and Freddie facing huge liquidity concerns. Their insolvency under fair value accounting has many worried about their failure. The Treasury and Congress are working to avert a catastrophe but face many challenges. The Treasury outlined a plan to increase the lines of credit to the GSEs and is also considering buying equity in the companies. This potential US Government ownership of these companies leaves many unknowns and clouds the distinction of who is backing these securities.

The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBSs) issued by Fannie and Freddie differ significantly. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners. Because homeowners can sell or refinance their homes, investors in 30-year mortgage-backed securities usually see principal repayment in significantly shorter periods of time. In terms of demand, Treasury securities are regarded as "risk free" investments, and often benefit from a "flight to quality" in times of financial crisis. The US Treasury has not historically backed MBSs, but that may now be changing. What that means for mortgage interest rates is uncertain. Be cautious during these trying times. * Courtesy Tonya Esquibel WR Starkey Mortgage, Franklin TN*
Permission to re-publish-The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.

Vanessa Stalets
Brentwood TN Real Estate
RE/MAX Elite
615-661-4400

Published Monday, July 21, 2008 10:13 AM by Vanessa Stalets