Mortgage Rate Update February 23, 2017

Despite there being a lot of noise mortgage rates are unchanged from earlier in the week.

There has been much speculation that the Trump administration will push Fannie Mae & Freddie Mac out of government conservatorship and return the companies to private shareholders.

But will they?  As industry expert Rob Chrisman laid out, imagine your son or daughter returned to your house during the recession and cut a deal with you that they would not be able to pay any rent to live under your roof in the near-term but once their financial conditions improved they would pass along their income to you and you could kick them out whenever you wish.  How quickly would you push them out if they were paying you ~$3 billion per month (not be confused with 3 brazilliion)?  Fannie & Freddie have now delivered profits to the US Treasury for 27 consecutive quarters.  The latest sum is a combined $10 billion.

Given the amount of money Fannie & Freddie are paying the US Treasury its hard to imagine a return to private shareholders.

The Dow Jones Industrial Average closed at a record high for the 9th consecutive day yesterday.  That has only happened five times since 1897 according to stock market legend Art Cashin.  Generally speaking when stocks rally it is bad news for mortgage rates.

Looking back at those five rallies though investors should be cautious.  Four out of the five aforementioned stretches led to stock market crashes (1929 & 1987) or prolonged bear markets (late 1960’s).  Should the stock market enter a down market now it would likely help mortgage rates remain low.

Lastly, minutes from the last Fed meeting were released yesterday.  The notes indicated that the Fed may act to raise short-term interest rates quicker than previously expected.  Their next meeting is March 14-15.  However, I’m not too worried because the Fed does not directly control mortgage rates and the Fed has a history of talking a big game but then not following through.

What was more substantial for me was the fact that they did not specifically mention any plans to curtail the reinvestment of principal prepayments back into the mortgage-backed bond market.  This will come at some point and when it does will likely cause mortgage rates to shift higher (see HERE to learn more).

Current Outlook: floating