Some time ago, I was a student in an advanced capital markets finance class in college. I seem to have forgotten many of the things I learned in that class (or at least “learned” enough to pass the test!) but one thing has stuck with me through the years.
“Don’t fight the trend. The trend is your friend.”
Today, it was announced that the Federal Reserve was committing $800 billion to hopefully unfreeze the capital markets. The announcement came as a surprise and stated that the Federal Reserve will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae.
“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said.
This $800 billion is in addition to the $700 billion “bailout” that was announced by the Treasury in early October.
Look for interest rates to generally trend lower in the relatively near future. And no, I am not 100% certain of what exactly the future holds — but I *did* learn in class once that the trend is your friend!
Arizona Mortgage Rates For November 25, 2008
 |  |
{ 2 comments… read them below or add one }
With the Treasury Secretary on his spending spree he surely isn’t trying to get a good return on the tax payers’ investment. The bailout was to buy up bad mortgage debt but it never did. What is the purpose of the fund? Paulson’s has warrants on many banks and they average 1 – 3 percent when enacted. Yet the cash investment is about 20 percent of the market cap. Maybe the next Treasury Secretary will be less erratic.
http://nomedals.blogspot.com
@Jason,
Thanks for stopping by and commenting! Although we are in the business of helping people find the right mortgage for their house, we gave up on trying to make sense of what-exactly-it-is-the-government-is-doing-to-”save us”-and-how-it-impacts-interest-rates some time ago.
This was our first step out there to declare that with *so much* money being injected into the system and with the Fed stepping in to buy so many Mortgage Backed Securities — it seems logical that the trend will be lower interest rates in the near-term future.
That said, for at least a few months now, nothing is “normal” in the capital markets and we are just hoping that the people pulling the levers know more about what will and won’t work than we do!