October 31, 2008 Mara Bushari

Please see below for Brian M. Cavanaugh’s insight into the mortgage market. Brian is a Senior Loan Officer at JPMorganChase in downtown Boston and is more than happy to assist you with all your mortgage needs.

Fed Cuts to Stimulate Economy

This week’s economic data and comments from Fed officials confirmed the economic outlook shared by most investors, namely that the economy is slowing sharply. Wednesday, the Fed cut the target Fed Funds rate by one half point to 1.00%, as widely expected. The vote was unanimous and followed a coordinated half point rate cut on October 8. Investors believe the statement left the door open for further rate cuts and have priced in another half point rate cut before the end of the year. The Fed appears to be most concerned with boosting near-term economic growth. While aggressive short-term stimulus is good for the stock market, mortgage investors are worried about its impact on long-term inflation, and those concerns helped pushed mortgage rates higher during the week.

A second factor also contributed to this week’s rise in mortgage rates. The federal government’s takeover of Fannie Mae and Freddie Mac in September left mortgage investors with the impression that there was explicit government backing of the debt and guarantees issued by Fannie and Freddie.

Government officials have been sending mixed messages, however, raising some concern about whether the two companies really will have the long-term backing of the government. Due to the uncertainty, investors, particularly important foreign investors, have been reluctant to invest in Fannie and Freddie guaranteed mortgage backed securities. Yields required by mortgage backed security investors directly affect most mortgage rates. If the government were to unambiguously convince investors that it will stand behind Fannie and Freddie guarantees, then mortgage rates could be expected to move lower.

Week Ahead

The biggest report next week will be Friday’s important Employment data. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month, since the health of the labor market is perhaps the single biggest factor in the performance of the economy.

Earlier in the week, the ISM manufacturing index and Construction Spending will be released on Monday. ISM Services is scheduled for Wednesday, and Productivity will come out on Thursday. Finally, Pending Home Sales, a leading indicator for the housing market, will be released on Friday.

Mara Bushari

Mara is a creative thinker and strategic marketer. She graduated Summa Cum Laude from Boston University’s College of Communication and worked in international finance before joining The Bushari Team. Mara strives to exceed expectations. As Client Relations Specialist, she is a key facilitator in all team transactions, making the buying or selling process as stress-free as possible for the client. Mara learned many of her extraordinary organizational and problem-solving skills during her service in the Israeli Defense Forces, where she earned the “President’s Award” for exceptional service. In the military, Mara solidified her abilities to achieve top results in high pressure and time sensitive situations. In her spare time, Mara enjoys skiing, photography and writing.

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