Low Mortgage Rates and Sale of IndyMac Bank Ring in New Year

In a mortgage market clamoring for good news, homeowners and investors get a couple of silver linings to kick off 2009.

Mortgage rates start the year at 37 year lows and promise to head lower, giving hope to homeowners. Meanwhile, investor confidence shows its return in $14 billion purchase of IndyMac Bank by private equity. Together these events signal strength in the two critical sides of the mortgage market, supply and demand.

Mortgage rates plunging into the low 5 percent range was the intended consequence of the Federal Reserve's plan to buy $500 million in mortgage-backed securities. First announced in late November, the 30-year fixed-rate mortgage has quickly descended from 6 percent. This is prior to any actual buying of securities by the Federal Reserve. Actual buying of mortgage-backed securities is expected to trigger even lower rates--potentially into the 4.5 percent range often mentioned as a Federal "target" mortgage rate.

These historically unique mortgage rates have triggered a refinancing frenzy driving up mortgage applications to equally historic levels. Lawmakers and monetary policy analyst are hoping for similar strength in new home buying. The core objective of federal subsidies is to engineer this floor to falling housing prices.

Giving strong Federal support to the mortgage market is having another beneficial effect. The enormous taxpayer investment into financial and mortgage markets is creating a very attractive risk environment for private investors.

There was no bigger indicator of that than the $14 billion acquisition of IndyMac Bank. This move signaled two important markers for long-term recovery. First, and most important, is that private investors are again interested in the mortgage market. This sends an indicator that investors believe in a recovering market for mortgage assets--reversing some of the fears of illiquid "toxic" assets. Second, the FDIC has sufficient confidence in their clean-up and the overall market to return IndyMac Bank back to the free markets.

These are certainly two important benchmarks in hopes for a mid-2009 economic recovery.