Rate Update January 27, 2009

Fixed mortgage rates are down from yesterday.  

 Mortgage Bonds are currently trading up nearly 20 points this morning after having a great afternoon yesterday.

 There is plenty to talk about today as the Fed finishes up the two day meeting and will release their interest rate decision an policy statement.  We will be paying close attention to what is said during that policy statement regarding inflation/deflation and the status of the Mortgage Backed Security purchase program.

 The Federal Deposit Insurance Corp (FDIC) announced yesterday that it may set up a “bad bank” as a tool to purchase illiquid assets from banks.  This “bad bank” would purchase these bad assets to help banks get them off their books and help them to continue to lend money out, which would help free up the credit market.  Just because these assets are hard to sell, or considered bad, doesn’t necessarily mean that they won’t perform; but it will mean that the lender’s credit lines could be freed up a bit.  The next step would be for these banks to continue to lend money once that has happened…which will remain to be seen.  This will be an interesting topic in the weeks to come as we see the progress of this happening, or getting morphed into another idea.

 Since touching the floor of support last week, mortgage bonds have quietly gained 100 basis points and are currently trading in the middle of a 200 basis point trading range.  Since we have gained quite a bit of ground in the last few days, it may be a good idea to lock in these gains if you don’t have much tolerance for risk…otherwise, there is still some more room for an increase in bond levels so we could possibly squeeze out another .125% or .25% reduction in interest rates if we can reach those levels.

 Current Outlook: Considering Locking