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The market is not receptive to mortgage securities, causing rates to remain high


The stock market has enjoyed a nice rally and oil prices have dropped nearly 15%, the ten year bond is back under 4% but mortgage rates remain at higher levels.

There are when a market reacts in unusual ways and historical trends are meaningless. The current mortgage market is very much in this state. With oil prices dropping by over $25 in the past month, mortgage rates one would assume would be in a free fall as the great inflationary fears brought on by rapid rising energy prices would be disappearing.

This is not the case, a common home owner who strictly follows the ten year bond would be disappointed to learn that mortgage rates remain relatively unchanged over the past two weeks, despite the drop over twenty basis points with the ten year bond. The market is in a very difficult period for pricing out mortgage backed securities and this is placing and upward pressure on current mortgage rates . The challenge is that there is a growing spread in the price of mortgage backed loan securities, in addition Fannie Mae has recently announced they will be adding further price adjustments to there mortgage loans, which will pressure rates to move higher.

The rapid decline in home values and the lack of a secondary market for mortgage backed loan securities means that mortgage rates are likely to remain over six percent for the near future. It is unlikely to imagine a rapid decline in mortgage rates, no matter what happens in the economy as investors simply are apprehensive about this market and the lack of demand will work to keep rates artificially higher for the near future.

8-11-2008 ? LoanNetwork.com





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