The mortgage market is finding some interest rate friendly support this morning from news commercial lender CIT Group said talks with the government regarding a possible federal bailout have ended unsuccessfully.
The likelihood of another headline bank failure sent many stock investors scurrying for the relative safety of the Treasury and mortgage-backed securities markets. The fact that the government walked away from CIT's request for aid suggests officials believe the financial system is now strong enough to withstand the bankruptcy of not only CIT Group - but the "ripple-effect" financial failures that will occur in both the banking and business sectors.
Keep your fingers crossed Treasury Secretary Geithner, his bureaucratic entourage and the Obama administration in general are proven right on this one. If the financial system were to lock-up again following a notable bank failure -- the remedies would likely be more painful this time around. Sure, against such a backdrop mortgage interest rates should move notably lower - but the law of unintended consequences would be extremely difficult to avoid. Borrowers need the confidence and the motivation - not to mention the necessary qualifying income - before ever deciding to cast a shadow in doorway of a mortgage originator. Another major meltdown in the financial system would likely generate such high levels of domestic -- as well as global economic dislocations -- lower mortgage interest rates on your rate sheets would probably have little, if any real relevance in terms of sharply improved loan demand.
The Labor Department reported this morning the number of workers filing first-time claims for jobless benefits fell sharply last week -- to the lowest level since January. Initial jobless claims plummeted by 47,000 during the week ended July 11th.
Normally such a big improvement in the labor sector would result in a sell-off in the mortgage market. This time around mortgage investors completely shrugged the number off. A Labor Department spokesman said there were far fewer layoffs than anticipated based on past experience in the automotive sector and elsewhere in manufacturing which accounted for the large drop. July is typically when the auto industry temporarily shuts plants for new model year retooling. The bankruptcy filing for both Chrysler and General Motors earlier this year pushed forward some of these shutdowns - putting autoworkers on the jobless rolls sooner than in previous summers. This was the second week in a row that seasonal factors had affected the data and the official said this data distortion would likely continue through the end of the month of July.
For the balance of the week look for mortgage interest rates to take their directional cues from trading action in the stock markets. Strongly higher stock prices will tend to drag mortgage interest rates higher - while relatively steady to lower stock prices will have a propensity to support steady to fractionally lower mortgage rates.
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