Fannie Freddie effect on mortgage rates?

down originally, than up.

Lehman Mortgage Backed Securities (AAA) closed on Thursday at close to a record 174 bp spread over 10-year Treasuries. I would expect those spreads to tighten in the weeks ahead given the government's explicit intention to recapitalize Fannie and Freddie. Mortgages are probably PIMCO's biggest bond market bet today; they obviously think rates are headed south as well.

Bottom line: I'd expect lower mortgage rates over the next few weeks - probably months. A healthy mortgage market is critical to shoring up the housing market - which, in turn, is critical to turning around the sagging U.S. economy.

The reason the Feds are coming in to take over Freddie/Fannie is that they are insolvent. Bankers from Morgan went in and looked at Freddie's books last week and realized they were cooking the books. They were overinflating their capital base. The Feds know it will only get worse as our housing crisis moves from subprime defaults to Alt-A and Triple AAA. So they go in to save them both now instead of waiting for a Bear Stearns catastrophe. I don't think this really changes rates dramatically up or down. Banks still don't want jumbo paper...

in the end this changes nothing...

Fannie and freddie only back conforming anyhow. I agree that no one wants jumbo paper ... That's because fannie and freddie won't buy it. I guess that more specifically my question is: how will this affect the 30 year conforming loan rates?

flmd apparently crammer thinks this will have a huge impact on the housing market

http://www.thestreet.com/_yahoo/newsanalysis/investing/10436132.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

That's Jim Cramer--sorry

Cramer said it = it must be true.

In the medium-term rates will fall because of the Treasury guarantee, foreclosures may be reduced but not eliminated entirely. But that will affect only current borrowers. Future borrowers will be subject to much tighter underwriting and risk controls. It will not prevent home prices from falling into line with incomes and rents.

Nothing can. Fannie and Freddie's guarantees and holdings equal the federal government's total debt. The government doesn't have enough money to fix the problem; only palliate it.

Once Fannie and Freddie are restructured, and either nationalized or privatized, all sorts of new regulations are going to come into effect to prevent this from ever happening again. It is the death of the Reagan Revolution's free-markets-at-all-costs dogma.

Unless you're a Larry Kudlow Reaganite: you believe the government is bad, unless it's helping you and your millionaire buds.

Steve, I used to be a fan, but your credibility drops with every post and every topic. FRE and FNM are constructs of the government and not the market, as is their growth. That they were able to take on 5 trill in debt on 80 billion in capitalization is something no private bank would ever be allowed. If they had been living in the world of real banks they could never have gotten to this state but they lived under different rules because they were a tool lawmakers could use to hand money out to the masses. And it gets worse than that because they had the rules written for them by lawmakers who benefited directly from these entities in ways that should have brought up issues of conflicts of interest.

I think that until there is renewed speculation that the fed will riase rates, this will have a poitive impact on the 30 year conforming. With the corrent spread between bonds and rates people are saying that rates should be 1 to .5 points lower than they currnetly are. Now that banks know they have a guaranteed buyer, they may relax their rates a bit.

Of course, in the longer term, one there are all kinds of new regulations, we may see the rates go up again.

that's my thought ... I'm very interested in what others think.

Wasn't it just last week, that all the wall street "brains," and various politicians (Barney Frank) stated that Fannie and Freddie wouldn't need help. Now we're to believe again, that they have solved the problem. How many times can you actually believe these lies.

News Flash... The Fed can not fix the problem nor can it actually bail them out. It's way to much money. They only chance they have, is to hope the markets react positively, and it pulls us out of this mess.

Lets see when we experience another Bear rally, how all the geniuses start the "recovery and we have bottomed" talk. Just pay attention the continuing lies. Who can you possibly believe?

Interest rates on 30 year fixed loans will go DOWN. How much is anyone's guess. On CNN they said possibly by 1%.

"Nothing is confirmed until officially denied."

Otto von Bismarck

How can anyone criticize a poster who inserts "palliate" in any discussion forum. I'm sufficiently impressed to agree with whatever this poster has to say based solely on his intellect and command of the English language.

AvUWS, I don't know why you think my credibility drops - I agree with everything you say.

Now then, my comment about Larry Kudlow et al. is that they're all for free and unfettered markets, until they're not. How can Hank Paulson actually say that management at Freddie and Fannie "was not responsible" for what has happened? They engineered it. Fannie has existed since Roosevelt, and was privatized in 1968, I think, and it has been running smoothly for 40 years. Freddie was created at about the same time to compete with Fannie. Only in recent times - the unfettered marketplace of the Bush / Greenspan / Cheney Administration - did a problem develop.

I don't say that Democrats aren't to blame as well - they took the money, Republicans halted regulation. That is something bright that Jim Cramer said on MSNBC this morning.

Interest Rates on Conforming / Eligible for F&F will go down in the near/mid term due to the fact that investors will dedmand less yield due to the backing of the gov't since they are as good as treasuries...in additon, with the reduction in inflation due to oil going down that is good news as well so we should see very favorable terms on conforming over the next 6 months...you will see the mother of all refi waves happen during this time...

But, once the party is over and F&F are made to reduce their portfolio as well as stop buying MBS on the open market as well as finally decide what to do with them I would assume rates will creep back up....

Oh yeah, and that massive deficit that the USA will have won't help either...but that will not become an issue till the next president...so get in while you can...

Jumbo = not good for now until i'm not sure when...a strcutural change to the market has to happen to get these MBS investors to start buying these securities again...unfornately the bad news is defaults are starting to happen at a higher rate on these so the future is not positive

The Federal Government is keeping a constant eye on interest rates. They believe that sometimes even the smallest change in interest rates can or will cause the business owners and general public to react a certain way. The predicted reaction helps the Federal Government keep inflation from getting out of their control, because if inflation gets out of control, the economy could collapse and we could fall info a recession or depression.
-------------------
Karen Walter
Find out how and what determines interest rates and what information lenders use to get to the actual interest rate

Interest Rates for Mortgages

The Federal Government is keeping a constant eye on interest rates. They believe that sometimes even the smallest change in interest rates can or will cause the business owners and general public to react a certain way. The predicted reaction helps the Federal Government keep inflation from getting out of their control, because if inflation gets out of control, the economy could collapse and we could fall info a recession or depression.
-------------------
Karen Walter
Find out how and what determines interest rates and what information lenders use to get to the actual interest rate
[url=http://www.interestrates.tv]Interest Rates for Mortgages[/url]