Giving thanks for mortgage money in Vail
VAIL, Colorado Thanksgiving week provided more to be thankful for than just friends, family and turkey. From a business standpoint, I was personally thankful for a tame inflation report and the announced Federal Reserve/Treasury plan to buy $500 billion of mortgage-backed securities from Fannie Mae, Freddie Mac and Ginnie Mae. When it boils down to it, mortgage interest rates are determined by inflationary levels and the availability of replenished mortgage money derived from the sale of mortgage-backed securities on the secondary market. These two releases sent a euphoric shock wave through the mortgage industry. Beginning with the inflation aspect, core personal consumption expenditures (core PCE) is fancy verbiage for inflation at the consumer level. The gauge measures price changes on a monthly basis in consumer goods and services, excluding the volatile cost of food and energy. Core PCE is widely recognized as the preferred report for measuring inflationary levels at the vital consumer level. On Nov. 26, the report came out surprisingly tame with a year-over level of 2.1 percent, which is considered acceptable and healthy inflation in the opinions of policy makers. However, the amount of liquidity being put in to the economic systems most certainly has inflationary implications, making current inflation levels difficult to sustain. Mortgages sold in bundles on the open market are essentially securities paying a fixed rate of return. Low inflation does not diminish the rate of return on fixed-rate investments such as mortgage-backed securities; therefore, mortgage rates generally rally on tame inflation numbers. Thanksgiving week was no exception. On Nov. 25, the Fed/Treasury announced plans to buy $500 billion of mortgage-backed securities from Fannie, Freddie and Ginnie. Although this move had been speculated for some time, that was the first direct action from the government to buy perceived toxic real estate bonds from the entities. Waves of new mortgage money were instantaneously created because these companies could now sell the mortgage security debt they were holding on their books to the government. Thus, they had new mortgage money to lend out to banks and consumers. More available funds translate to lower interest rates. As positive as the events are for the immediate term, the mortgage industry and interest rates remain quite volatile and erratic. Not all rates and loan programs were positively affected, and qualifying for a loan can still be challenging. Nonetheless, those borrowers with the right criteria and the right mortgage professional guiding them certainly can capitalize on historically low interest rates. William A. DesPortes is a managing member of DesPortes, Selig & Associates, Professional Mortgage Services. He can be reached at 970-926-9393 or firstname.lastname@example.org.