Current Mortgage Rates Dropping Due To GSE Takeover

Author: Rob K. Blake | Date: September 8, 2008 | Filed In: Mortgage Rates

Current mortgage rates are dropping and may continue to do so since the government takeover of Fannie Mae and Freddie Mac. Current mortgage rates had been rising as credit spreads due to lack of confidence in solvency of the GSEs creaped into the market.

Current Mortgage Rates Improving

In an interview today on Fox news, Warren Buffet explained the credit spreads which make up current mortgage rates is a combination of the yield on Treasuries plus a spread. It’s that “spread” that was growing making mortgage rates climb. This spread is caused in part by the investors of our debt losing faith in our mortgage debt.

Buffet said, “There was going to be a crisis at some point and they averted that by taking this action”.

Fannie and Freddie mortgage debt were believed by investors to “backed by the US government” when they really were not…and Buffet said the government “had to step in of Fannie and Freddie” and make the implied guarantee a expressed guarantee.

Current Mortgage Rates Now Tied To Treasuries

Once the government did step in, current mortgage rates can return to a “full faith and credit” belief, and we are seeing a mortgage investment become more like a Treasury bond. Treasury bonds are seen as low risk therefore rates/yields are low too. If mortgages are now seen as less risky, then current mortgage rates drop…it is that simple.

So if Treasuries don’t go up…then current mortgage rates won’t go up. If Treasuries go down, mortgage rates fail as well. You should probably read our post, “Current Mortgage Interest Rates: Why They Rose After The Fed Cut“, since current mortgage rates will now be moving in connection with what the Fed does more than before.

Here’s the interview…enjoy!

If you’d like to get our Real Mortgage Rates Daily Podcast to keep track of current mortgage rates…click the link.

Good Luck!

Author: Rob K. Blake