A Kick in the Stomach? by the Fed?
Yeah, that’s right. The biggest kick in the stomach since the September/October meltdown of 2008. What is that kick in the stomach?
It’s the government’s withdrawal from the mortgage backed securities market. We’ve already talked about how the government’s market share in the residential mortgage market has climbed to an all time high. But this is something else. In addition to that, the government has committed to spending almost $1 Trillion (that’s $1,000,000,000,000) in buying mortgage backed securities in an effort to keep rates lower.
If you recall, when the Fed announced they were buying Mortgage Backed Securities, rates dropped by .375% over night. As we’ve discussed on here before, many people believe that it’s reasonable to expect rates will edge up by about that amount over the next 5 months as the Fed winds down their purchase plans.
But this article, and the report that Meredith Whitney gave yesterday (see the next post) give serious credence to the fact that it could be substantially worse than that. Why?
- Because the credit qualify of mortgages has deteriorated substantially since then.
- Because the investment market has changed since then.
- The appetite for mortgage backed securities is probably substantially less than what they expect that it is.
Now if we apply the Vanderwell Rule of 50% (what’s that? – simple, take their estimates and “tone them down” by 50%) what does that say for mortgage rates?
It essentially says that we’re going to be looking at a minimum of .5 to .75% higher rates in the next 6 months.
Tom Vanderwell
I’d qualify that – I’d say let’s hope it emerges into the public view over the next four months, because it could be – if the Fed exits as planned at the end of first quarter 2010 – the biggest kick in the stomach housing and financial markets have gotten since surviving the near total shut down of credit last fall.
Technorati Tags: Mortgage Rates, The Fed, Meredith Whitney
