Imagine for a minute that you are the head of the Federal Reserve Bank. You have authorized billion of dollars to be printed to invest in mortgage backed securities each and every day, with the intent of driving mortgage interest rates lower in an effort to stimulate the US economy. Then along comes Mark Calabria, the head of the Federal Housing Finance Agency (FHFA), the entity that oversees both Fannie Mae and Freddie Mac, who adds a ½% fee to each and every conventional refinance loan done. This move basically takes much of the rate benefit the Fed has paid billions of dollars a day to help consumers to line the pockets of the FHFA. Not only that, but the move is done with zero warning to consumers who are now forced to pay that fee just to refinance their home. As you can only imagine, this move has many members of the Federal Reserve up in arms.
What makes this even more interesting is that Mark Calabria was nominated by President Trump, who certainly would not want to see homeowners face an additional ½% fee to refinance just weeks ahead of the Presidential election. This move is a slap in the face to the efforts made by both the US Treasury Department and the Federal Reserve, both of which have added trillions of dollars to the US economy to help stimulate growth. If you are as outraged by Mark’s actions as I am, I invite you to let our lawmaker know how you feel here: https://www.votervoice.net/MBA/campaigns/76617/respond. Every voice that speaks out against this move will be heard.
In economic news, Retail Sales came in strong last month, posting a 1.2% gain. However, we must keep in mind that the base line starting point was dismal, so gains were certainly anticipated. Next week we will receive updates on the strength of the US housing market, which are expected to show very strong growth in Existing Home Sales. As we are seeing in many asset prices, home values just continue to climb higher as demand climbs with low interest rates. With the added trillions of dollars added to the US economy by the Fed and US Treasury, upward inflationary pressures could continue to help support rising home values in the near term. I believe the key is to make it through the winter months before taking away any support or cut back any Fed investment. As long as we see a vaccine by spring, we could see a the path to economic recovery strengthen by mid next year. In the meantime, it’s important for the Fed to keep its foot on the gas.
Mortgage bonds remain under pressure. While trapped in the current trading channel, a locking bias is prudent.