Market Commentary: The trend trajectory of mortgage interest
rates this week will be most influenced by world news headlines –
specifically those headlines surrounding hotspots of civil unrest in
the Middle East, the Japanese earthquake, and the resurgent
financial crisis in Europe. These headlines are almost certain to
create a major tug-of-war in the credit markets.
Anchoring one side of the market will be investors who strongly
believe companies who have insured Japanese lives and assets will
soon find it necessary to begin selling large parts of their Treasury
and mortgage-backed securities portfolios to generate the cash
reserves to pay major claims resulting from last Thursday’s
earthquake and tsunami. If these expectations prove accurate,
mortgage interest rates will likely advance to higher levels.
Opposing this group of market participants will be those who believe
social unrest in the Middle East and the growing financial crisis in
Europe will cause massive amounts of foreign capital to flow into the
relative safe harbor of dollar-denominated assets like Treasury debt
obligations and mortgage-backed securities – a decidedly mortgage
interest rate neutral to friendly outlook.
I’m not sure which of these two groups will ultimately prevail – but I
do strongly believe it would be a mistake not to convert “floating”
loans to “locked” should the price of the Fannie Mae 4.5% 30-year
fixed rate mortgage-backed security fall below the 101.687 price
level on a closing basis. In times of great uncertainty -- control your
risk tangibly.
