Long-Term Interest Rates Inching Up

  • The 10-year Treasury yield has been creeping up despite the efforts

    by the Federal Reserve to bring it down. TALF (Term Asset Lending

    Facility) is being utilized to buy government bonds, small business

    loans, credit card and other consumer loans and securities in order to

    get dollars moving along the economy. The Fed can do this by printing


  • When the Fed buys bonds, it pressures the rates to fall - in

    general. But if people believe there will be future erosion in the

    dollar's purchasing power, they will be less receptive to lend unless

    higher interest rates compensate for the potential loss in the

    purchasing power of the dollar.

  • That is what may be happening in regards to 10-year Treasury yield

    moving higher even though the Federal Reserve has been buying those


  • The 30-year mortgage generally moves roughly in proportion to

    10-year Treasury moves. So the mortgage rates could be a tad higher

    this week compared to the last.

Re-Defaulting Mortgages

  • A government agency collecting information on mortgage modification

    from major lenders showed increased re-default rates among recently

    modified loans. The link is here (Put link …


  • A modification that reduced payment by forgiving portion of

    principal, lower interest rates, or extending the amortization period

    did show lower re-default rates than those modifications that did not

    lead to a lower monthly payment.

  • Foreclosure rates will rise despite mortgage modifications plans if

    redefaults show no sign of abating. As long as home prices continue to

    overshoot downward, redefaults will continue to rise as underwater

    homeowners 'give up.'

What does today's data mean for REALTORS® and consumers?

  • Do not automatically assume mortgage rates will fall further

    because of the Federal Reserve pumping out more money. Rates may fall

    or they may not. There are a lot of forces at work in moving interest

    rates one way or the other.

  • Foreclosures will surely trend higher as close to half of modified

    loans end up re-defaulting. The key to housing stabilization is whether

    or not there are sufficient buyers of foreclosed homes.

  • Recent data indicate that home sales are picking up on the low-price points and for those homes in foreclosures.

Daily Forecast Update

  • GDP Q1: -4.9%
  • GDP Q2: - 1.7%
  • Unemployment rate by the end of 2009: 10.0%
  • Average 30-year fixed mortgage rate by the end of 2009: 5.2%