This article on CNNMoney.com provides excellent answers for some questions that I had regarding the near failure of the nation’s largest insurer AIG.
Tag: AIG
Rate Update September 17, 2008
The major piece of news this morning is that the government has stepped in to bailout the nation’s largest insurance business AIG. This is not a huge surprise because of the extent that AIG is intertwined into the broader financial system. Had the government not stepped in the consequences would have been drastic.
The implication of this announcement on mortgage rates is that volatility has picked up. You’ll notice that mortgage rates are sharply higher this morning. Both the stock market and bond market have made acute movements in the past couple days as investors try to interpret these unprecedented events.
For those of you who may have insurance through AIG the research I’ve done tells me that you should be fine. Here is a link to a great article on CNNmoney which provides simple answers.
We remain optimistic that in the next few weeks mortgage rates will come down further. However, it is clear that day to day we may see volatile changes to rates.
Rate Update September 16, 2008
Rates are effectively unchanged this morning.
There is A LOT to talk about this morning as crisis in the financial markets persists. Here is a summary of the major stories we’re falling that are likely to impact the direction of mortgage rates:
→ AIG: The nation’s largest insurer is close to insolvency. Analysts are suggesting that the troubled insurer needs to raise $75 billion in fresh capital to stay afloat. The failure of this firm would be unprecedented because of it’s vast reach & volume of obligations. AIG operates in 130 countries and is a major player in the credit default & life insurance sector. AIG’s failure would likely cause a major disruption in the financial markets which could drag other firms down with it. Although rates may benefit from this news in the near term, in the long run this would be a disaster.
→ Federal Funds Rate: The Fed is scheduled to announce their interest rate policy decision this afternoon. Last week at this time there was a 0% chance that the Fed would alter rates. However, analysts now assume a cut of at least .25% and possibly even .50%. Remember that in and of itself the Fed cutting rates will not directly impact mortgage rates. However, what they say following their announcement can.
→ Consumer Price Index: Finally, the Labor Department released the monthly CPI report. The report came in line with expectations reflecting a 5.4% increase year-over-year. When stripping out volatile food and energy prices year-over-year inflation rose by 2.5%. Although these figures are relatively high compared to the past couple years the announcement did not surprise the markets.