What the Federal Bailout Means for Mortgage Rates
The bailout passed! Much has been said about the possible effects, and concerns, of such a move by the Bush administration and Congress. Initial reaction runs from outrage to relief to mass confusion. But how will the bailout impact mortgage rates in the near term? Does anybody know for certain? Good, come to Chicago, I'll buy you lunch! Hell, I'll even pay for the plane ticket and a night's stay at the swanky Drake Hotel off Michigan Avenue.
So no takers — at least those who know FOR CERTAIN! Rich Bira, president of First Capital Mortgage in Chicago, and one of the Dean's Team Chicago Preferred Lending Partners, points to the relationship between investor interest in stocks versus bonds as a clue that mortgage interest rates are likely to rise within the coming weeks and months.
'I guess I'm saying that they're going to go up on the sole premise that in the next few weeks to a month, the stock market will hit bottom and the stock market will get its footing.'
Increased investor participation in the stock market could draw money out of more conservative investments in bonds. While this isn't always the case, in recent months, the relationship between bond prices and mortgage interest rates has worked in reverse: the lower the bond yields, the higher the mortgage rates, and vice versa.
Seeing into the future
But can anyone, expert or not, predict with any certainty whether the stock market will soon find a bottom? Furthermore, how will the U.S. Treasury Department's purchase of distressed-quality mortgage assets proceed? If it fails to go smoothly, the stock market might continue to tumble in response, keeping bond investments high by comparison.
Also, how will the Federal Funds Rate change in the short term? Will inflation keep that rate unchanged from current levels, or will the Federal Reserve lower that benchmark rate in an attempt to spur the housing market? And if they do, will it have the desired effect?
Will mortgage giants Fannie Mae and Freddie Mac, which have already rolled back some previously adopted fees on certain mortgages, introduce new policies geared at making more mortgage money available for buyers with mid-FICO credit scores? Or will the far more stringent loan-approval standards in place this year continue or get tougher?
In any event, a poll conducted by Bankrate.com released last week suggests U.S. home buyers may be seeing falling rates within the next month to month-and-a-half or so. Of the panelists it polled, two-thirds predicted falling rates within the next 45 days. Whatever happens, most agree that it won't happen immediately.
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