10 Sep 09 Bonds for Mortgage Loans Yields Decline
Bloomberg reported that yields on Fannie Mae and Freddie Mac mortgage securities declined to the lowest in more than three months, signaling that mortgage rates on home loans will drop more and bolster the U.S. housing market. Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds fell 0.1of a percentage point to 4.29% as of 3 p.m. in New York, the lowest since May 26, according to data compiled by Bloomberg. The drop followed benchmark Treasury yields lower after stronger-than-forecast demand at the last of three government debt auctions this week. “If Treasury auctions are oversubscribed day after day, it is only natural that mortgages shouldn’t be far behind,” Tae Park, a portfolio manager in New York who oversees mortgage-bond investments at Societe Generale, said.
Lower mortgage rates may help the housing market offset a forecasted further flood of foreclosure sales to build on recent signs of strength, including the first month-over-month increases in property prices since 2006 registered in an S&P/Case-Shiller index in May and June. The drop in mortgage-bond yields also suggests home-loan rates may reach the levels below 5% that analysts including Credit Suisse Group AG’s Mahesh Swaminathan say are needed to send refinancing to elevated levels, bolstering consumer finances and spending. The average rate on a typical thirty-year fixed-rate mortgage dropped to 5.07 % in the latest week, McLean, Virginia based Freddie Mac said today in a statement. That’s down from as high as 5.59% in June, and up from the record low of 4.78% in April. While mortgage refinance applications rose to the highest since late May in the latest week, they remained 64% below the high this year set in January, according to a Mortgage Bankers Association index.
Yields on so-called agency mortgage bonds, the type of debt being bought by the Federal Reserve under a $1.25 trillion program as well as by the Treasury Department, are now guiding rates on almost all new U.S. home lending, following the collapse of the non-agency market in 2007 and retreats by banks. The almost $5 trillion market includes securities guaranteed by government- controlled Fannie Mae and Freddie Mac and bonds of U.S.-insured, low-down-payment loans backed by federal agency Ginnie Mae. While “after four years of decline, the housing market is showing signs of turning,” sizable challenges remain, including more than 2 million foreclosures over the year ahead, Deutsche Bank AG analysts Peter Hooper and Torsten Slok in New York wrote in a report yesterday. “The question is how strong the bounce,” they said. “Recent movements in sales, prices and builder expectations looked quite promising, but there are good reasons to expect that home building and prices will remain relatively depressed well into next year despite the recent bounce.” Article was written by Jody Shenn.
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