Rate Update March 19, 2008

Mortgage rates rose .25% following the Fed rate cut of .75%. Why? First off, we already know that Fed rate cuts raise concerns about future inflation. In his post-announcement speech Chairman Ben Bernanke said:

“Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.”

In other words, “We’re concerned about future inflation.” His comments sparked a sell-off of mortgage-backed bonds which pushed mortgage rates higher by .25% yesterday afternoon.

However, in somewhat of a surprise move government regulators reduced capital requirements on Fannie Mae & Freddie Mac freeing up capital for them to invest into the mortgage-backed bond market. This is expected to bring upwards of $200 billion of demand into the bond market which is helping to bid up prices this morning. The rally in bonds has helped mortgage rates get .125% back from the .25% they lost yesterday.

Current Outlook: floating on Fannie & Freddie news