Rates Still Favorable

STATE OF THE INDUSTRY

With all the financial turmoil hitting the stock and bond markets much is still unknown concerning the future of the US economy.What we do know is the Federal Government has recently taken unprecedented steps to shore the economy and back many historically private institutions. The Securities and Exchange Commission implemented strict trading rules prohibiting short selling of financial stocks. Money market accounts, historically considered safe investments, got caught in the financial turmoil of the Lehman Brothers bankruptcy. As a result, the Treasury created a temporary insurance system for the funds. Regulators indicated this was done to prevent a banking system collapse.

Fannie Mae and Freddie Mac were taken over by the US Treasury. This effectively guaranteed the performance of the Fannie and Freddie instruments with the backing of the US Federal Government. Federal Housing Finance Agency Director James B. Lockhart indicated that not acting, “would have been disastrous for the mortgage markets, as mortgage rates would have continued to move higher and, in turn, disastrous for the enterprises as the prices of their securities would have fallen and credit losses increased.” He noted the goal of the takeover was "to help restore confidence in Fannie Mae and Freddie Mac, enhance their capacity to fulfill their mission, reduce the systemic risk and make more mortgages available at a lower cost to the American people.” While lending guidelines have tightened and mortgage rates remain volatile, the good news is rates remain historically favorable.