Treasury Continuing to Try to Talk Down Mortgage Rates

Posted on October 29th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

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

In effort to reduce mortgage rates, the Treasury Department is stressing that the U.S. government “effectively guarantees” all Fannie Mae and Freddie Mac debt and mortgage-backed securities. “The U.S government stands behind these enterprises, their debt and the mortgage-backed securities,” Treasury acting under secretary Anthony Ryan told the Securities Industry and Financial Markets Association. “Their mission is critical to the housing markets in the United States and no one will deny the importance of these institutions in assisting our housing market in this downturn,” Mr. Ryan said. The two government-sponsored enterprises were placed into government-controlled conservatorship on Sept. 7. Fannie Mae and Freddie Mac each entered into a preferred stock purchase agreement with Treasury “that effectively guarantees all debt issued by the GSEs, both existing and to be issued,” the Treasury official said”.

My friend Bill King touched upon this major problem in last night’s missive:

Other Mr Mortgage Related Stories

8 Responses to “Treasury Continuing to Try to Talk Down Mortgage Rates”

  1. Some bogus, sickening, socialist?, (un-capitalistic) comments:

    Bazooka Hank: “Fannie and Freddie play an important role in our economy and can’t be allowed to fail…” JAllen: Their role should be to make money, and when they can’t, they should be out. Their role? What is this, a tragic comedy?

    Bazooka Hank: “We need the 700bn to ‘continue economic expansion'” JAllen: Economic what? Expansion? …Bwhaaaahahahaaa!!!

    Headline: “White House tells banks to stop hoarding money.”
    JAllen: Now we are France, China, USSR, you pick one.


  2. Mr. M please keep up the great work!

    From the White House: “What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money,” White House press secretary Dana Perino said.

    JAllen: This is pathetic. Banks are businesses, and should be in business to make money, Dana. They should have made fewer loans (at higher rates) in the past, and few now.


  3. Dan Perino? Didn’t he play for the Dolphins? Now with the White House.

  4. Great stuff MM. No such thing as infinite financing to fund an infinitely large bailout. You reading Brad Setser’s blog? He’s the man on international capital flows, especially sovereign purchases/sales of agencies.

  5. Mr M.
    This has less to do with the guarantee and more to do with all the other guarantees the government has been spraying around as of late. Up until 6 months ago, there were only two places where you could get a return with the implicit/explicit of the US government behind it – Treasuries and GSE bonds. Now, you can get that kind of guarantee from just about anywhere in the financial system. There is only a fixed amount of money looking for those sorts of deals and now they have the pick of the litter so why should I invest in GSE debt – with housing behind it…ick when I go to other places? Law of Unattended Consequences, we saved Fannie and Freddie from the market only to pull the trigger ourselves.

  6. Anyone got a good resource or link on Quicken Loans? I see that they are done with HELOCs and are mostly dumping everything on FHA now. What exactly did they do before? Who ended up taking a bath on their adjustables?

  7. Thanks for the update MM

    The crap just keeps getting deeper and deeper.

    man we are screwed BIGTIME…

  8. I agree Grant but I think its a little of both. FCB’s want nothing to do with Agencies once King Henry is out of office.

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