Dec. 26-27, 2009

The U.S. Treasury Department picked Christmas Eve to announce that it is increasing the slush fund it has been providing to Fannie Mae and Freddie Mac to soak up bad loans. Treasury will remove the caps on aid to Fannie Mae and Freddie Mac for the next three years, to allay investor concerns that the companies will exhaust the previously allocated government assistance.

The two companies have caps of $200 billion per year each on backstop capital from the Treasury. Under the new agreement announced on Thursday, these limits can rise as needed to cover net worth losses through 2012.

Treasury says the two aren't likely to need the full $400 billion they'd been offered for 2009, but its authority to expand the guarantee unilaterally expires Dec. 31. The two GSE's (Government-Sponsored Entities) combined have drawn $111 billion of that so far this year.

Reading the tea leaves of this, one thought is that Treasury foresees an extended run of foreclosures. Treasuries and mortgage-backed securities were selling off this week, which pushed up interest rates, perhaps as a foretelling of a new cycle of higher rates. The 10-year Treasury rose in yield to 3.81% at the close of this week's trading and seems to be targeting 4% yield, which presents a signal point for mortgage rates, according to my analysis. The 10-year, which generally correlates with mortgage rates, has not crossed 4% all year. The 3.81% is its highest yield since Aug. 7.

Another view is that rates were pressed upward this week as investors pondered the Federal Reserve's recent announcement that their program of buying mortgage loans would expire in March. This support under the market, which the Fed announced in November 2008, triggered the trough in mortgage rates of 4.5% to 5%-something that we have experienced generally ever since.

While money was flowing out of bonds, it was moving into stocks with a so-called Santa Claus rally that pushed all major stock averages to highs for 2009.

Now is the time to be firming plans for real estate and financing for 2010. All is not gloom and doom. We have a window of opportunity at this time. Call me to show you some opportunities you can find in real estate now and to do some "mortgage planning" on your overall financial plan.

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...by Gary Moore

Cell: 615-579-8658 Toll-free fax: 866-321-6513

"We are what we believe we are." --C.S. Lewis

Visit my mortgage website:

http://www.BrentwoodHomeLoan.com

(0% points, 1% origination, subject to program and lock period. Market Update informs on market trends and is not a quote for a unique borrower.)

Posted by Gary Moore on December 28th, 2009 1:24 AMPost a Comment (0)