Credit Conditions Improve

Market Watch for the Week of March 9, 2009

Both mortgage and government interest rates dropped slightly last week as the never-ending tug-of-war continued. The overall weakness in the economy (employment, manufacturing, current loan applications) continues to be a positive influence for the bond market as a whole. Unfortunately the never-ending borrowing from the Fed to subsidize the economic stimulus program has created the feeling that inflation is within the realm of real possibilities as soon as the economy starts to recover. The theory is that this borrowed money has to get repaid and the only way to attract the necessary capital is to offer higher yields to investors. This state of uncertainty is likely to continue until there is further clarity on the state of the economy. The positive news for interest rates is that the government is extremely aware of the effect that interest rates (especially mortgage rates) have and that they must stay low for a better chance of a sustained economic recovery. Also, the current employment market must also improve for any recovery to happen.

Changes for 2009 Stimulus Package  

  • FNMA FHA loan amounts have been increased to $729,750 for the balance of the year.
  • New FNMA LTV limits have been raised to 105%. This will allow borrowers’ that owe more than their home is presently worth to refinance, provided they initially put 20% down on the property and meet all other guidelines.

Major Economic News Due Out Week of March 9 th

Thursday – February Retail Sales are expected to drop by 0.5% last month vs. a 1.0% gain in January. This is a closely watched number as this report measures the pulse of the consumer who accounts for 2/3rds of the nation’s GDP.

Thursday – The U.S. Housing Financial Services Committee is holding a hearing on mark-to-market accounting rules which have resulted in billions of dollars in write downs. If this change occurs, the credit market could improve dramatically which would free up lending and create predictions on credit spreads. This is the most important news item of the week.

Friday – Import Prices are expected to decrease by 0.7% vs. a decline of 1.1% in the previous month. This is a secondary inflation number as it measures the price of imported goods which are a decent amount of the inflation component. This lower inflation has been the result of lower fuel prices.


Conforming and Non-Conforming Rates
30 Yr Fixed                      4.625%
15 Yr Fixed                      4.250%
Jumbo Conforming
30 Yr. Fixed                     5.250%
15 Yr. Fixed                     6.000%
5/1 ARM                           5.250%
7/1 ARM                           5.500%
10/1 ARM                         5.750%

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