U.S. Debt Demand Improves Agency and Jumbo RatesJul 18 2011
Despite U.S. lawmakers being unable to agree on a deficit plan, U.S. debt ceiling fears haven’t stopped investors from moving money into Treasuries. Last week, debt concerns in Spain, Portugal and Italy made investors flee for the relative safety of U.S. debt, lowering mortgage rates. The third largest debt market in the world, Italy, may be too big to bail out compared to Greece who is ninth.
As the week starts, Investors remain skeptical over the strength of European banks, despite the European Central Bank releasing stress-test results to reassure the market. This has given mortgage rates a strong start to the week. Demand from U.S. Treasuries and government insured mortgage-backed securities have also improved jumbo rates, providing borrowers with improved financing options. While economic turmoil remains abroad, expect mortgage rates to remain low with such strong demand and investor support.
The government is considering de-emphasizing its involvement in the mortgage market by no longer guaranteeing higher loan amounts. In 2008, congress temporarily increased the loan amount that Government Sponsored Enterprises could guarantee in high cost areas, thus providing better interest rates to these borrowers. Barring congressional action, this temporary increase will expire in September. This could mean that the agency loan limit on a single family home could drop from $729,750 back down to $625,500 in high cost areas. Outside Illinois, borrowers looking to purchase or refinance in high cost areas should consider the impact of these changes and reconsider financing options before these limits change. Information around loan limits by county can be obtained on the HUD website, and Guaranteed Rate is happy to help you identify if you are impacted.
The week’s economic calendar is relatively light so expect the most attention to be paid to debt issues both foreign and abroad. The rating agencies have indicated they are going to scrutinize ratings of U.S. Treasury debt to the extent that the debt ceiling debates don’t head toward resolution. Keep an eye on movement in this space as lower credit ratings would drive higher rates for Treasuries and mortgages.