The housing market is being dealt another blow. Fannie and Freddie mortgage backed debt has been under fire in recent days. Mortgage rates have risen considerably.
A friend who deals in this space told me yesterday ‘there are very few new buyers’. As Agency debt is sold, interest rates rise. Agency spreads have been blown out despite the Treasury backing the paper in the big Fannie/Freddie bailout and Lockhart repeating the fact they were backed a couple of weeks ago.
Now, Treasury is continuing their futile campaign of talking down mortgage rates with yet another statement from Treasury. Obviously they are frustrated that large Agency holders keep selling in favor of Treasuries when they both have the same backing, or so we are told.
Perhaps investors just don’t like the word ‘effectively’. Remember, the operative word with respect to the GSE’s is ‘explicit’. Maybe they are refusing to use the word because there is no way Treasury can ‘explicitly’ guaranty $5.4 trillion in loan guarantees and debt. Foreign Central Banks know this. I wrote about is several times when it was happening a few months ago – see links at bottom of page.
Perhaps investors just rather buy the debt of the nine favorite children banks and brokers that also have the same ‘effective’ backing. Now that everything is government backed, there is a lot of competition for dollars. Perhaps foreigners are sick and tired of anything US housing and mortgage related especially when they are also de-leveraging and raising capital.
Whatever the case, Agency debt and mortgage backed debt is being shunned. And if this does not turn around, the housing market will become even less affordable forcing values down that much more setting off even more loan defaults due to the dreaded negative equity effect. Housing remains unaffordable enough without 8.5% rates coming into the picture. -Best, Mr Mortgage
“Treasury: U.S. ‘Effectively Guarantees’ GSEs
Source: National Mortgage News
My friend Bill King touched upon this major problem in last night’s missive:
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