In a week overdone with market-altering news, conforming mortgage rates shed a quarter-percent overall last week. It was the third straight week in which rates improved.
The biggest story, by far, was the government’s takeover of Fannie Mae and Freddie Mac.
The two quasi-government agencies were nationalized into bona fide government agencies, converted mortgage-backed debt into risk-free, government debt.
Instantly, conforming mortgage rates fell.
But, once the news settled in, mortgage markets returned to normal and, like in weeks prior, rates mirrored the path of the U.S. dollar.
Early in the week, the dollar was helped by economic trouble in Europe and optimism about the U.S. economy. Currency traders flocked to the dollar, helping to push mortgage rates down for Americans.
But, as the week continued, dollar enthusiasm waned and mortgage rates increased. Then, Friday afternoon, the dollar — and mortgage rates — got shellshocked by a combination of news contributed to the dollar’s worst one-day decline in six months:
- Hurricane Ike threatened oil supplies from Texas
- Back-to-school sales were weak nationwide
- Lehman Brothers teetered on collapse
This week, without much economic data to digest. Wall Street’s attention will be focused on Tuesday’s Federal Open Market Committee meeting. Ben Bernanke & Co. are widely expected to hold the Fed Funds Rate at 2.000 percent.
But, it won’t be what the Fed does to the Fed Funds Rate that will be so important Tuesday. It will be what the Fed says.
If the Fed shows worry over medium- or long-term inflation in the economy, mortgage rates should rise because inflation is the enemy of the mortgage market. Sometimes, even an off-hand reference to inflation can make that happen. By contrast, if the Fed shows little concern for inflation, it may cause mortgage rates to fall.
The FOMC adjourns and issues its press release at 2:15 P.M. ET Tuesday.