Mortgage News

Irrational Exuberance. It is over a decade since former Chairman of the  Federal Reserve Allan Greenspan made these words immortal. He was referring to inflated values of assets. Certainly, when one looks at the devaluation of certain assets as we have seen in the current stock meltdown, one could call this irrational despair. When dealing from a position of despair, any bit of good news seems to beget euphoria. Certainly this was the case in the past few weeks when major banks reported billions in profits for the first quarter and reports from around the nation indicated that homebuyers are coming out to look at houses. This news does not mean that banks are out of the woods and the real estate market is ready to explode.

Despite this cautionary statement, the stock market's reaction has been to continue the rally. It should also be noted that rates have moved up at the same time. We have talked continuously about the tug-of-war regarding rates. Rates are exactly where they were over a month ago before the Treasury caused a huge decline by announcing they would be purchasing treasuries and home loans.

In the face of some signs of economic recovery, the pressure of government spending is gaining the upper hand. This is happening despite the fact that the government keeps talking about rates that should go lower. In reality, it is possible to keep rates on home loans low as general rates rise by creating more confidence in the real estate markets. Investors are more likely to purchase loans if they don't feel the underlying collateral (homes) will lead to default. Are rates likely to go lower with these conflicting forces? It certainly appears not right now. Right now rates are the lowest of our generation and we should recognize good news as good news