Mortgage Rates Remain Outstanding, August 18, 2010

Mortgage Rate Trend Direction:     Down

Economic Reports/Impact:              No Economic Reports Released Today

Key News:                                           US Companies Earnings, Conference of Future of Freddie/Fannie

Summary

Mortgage rates increased yesterday as the stock market rallied on good earnings from Walmart and economic data that was not as bad as feared.  Today appears to to be a day of pause before tomorrow's data-rich news related to jobs and leading economic indicators. Though there is some positive earnings news, the stock market is to likely to open marginally lower as profit-taking from recent rallies is favored.  Therefore, mortgage rates are expected to open lower today, though a reversion to neutral by day's end would not be surprising given the important economic data due tomorrow.

Impact of economic reports

No official economic data will be released today.  Analysts and traders will be making decisions today on other factors today. One unofficial report from the Mortgage Banker's Association released this morning showing increased refinance activity has created some positive buzz.  If more homeowners are able to lower housing costs it could be postive for the economy--if those cost reductions result in increased consumer spending.

On the earnings front, Target reported positve earnings and expectations for the balance of 2010. Combined with the earlier news from Walmart and Macy's this week, analysts are expressing some confidence that consumer spending is holding up.

Impact of international or political events

The big event politically yesterday was the conference hosted by US Housing and Urban Development secretary Shaun Donovan and Treasury Secretary Timothy Geithner on the future of government-owned mortgage giants Fannie Mae and Freddie Mac.  What was clear from the comments is that the current system for financing mortgages is going to change, the big question is to what degree. 

The key point of contention is whether, or to what degree, the US government will continue to guarantee payment of mortgages underwritten to standards it sets.  One of the major negative fallouts from the current housing crisis has been that all taxpayers have ended up on the hook for the mortgages that have been foreclosed due to the government guarantee.  Several proposals were put forth to continue some form of government guarantee.  The result of most of these proposals would be increased costs to consumers either through higher fees, higher rates or both.

It should not surprise anyone that costs for mortgage financing are ultimately heading higher.  Years of government guarantees that were essentially free to consumers, lead to a collapse in the system and huge losses.  The benefits that consumers receive from government guarantees (a functioning secondary market that ensures competition in lending) will far outweigh the costs associated with these changes.  In the meantime, prior to the changes taking effect, this remains the best opportunity ever to finance or refinance a home.