In the current environment, the government giveth, and the government taketh away. Barney Frank once again made headlines last week with the statement that the House Financial Services Committee will recommend doing away with Fannie Mae and Freddie Mac and “rebuilding the U.S. housing-finance system from scratch”. “A whole new system of housing finance,” although most analysts feel that there will be continued government involvement. Given that they set the standards for the mortgage industry, own or guarantee half of the $11 trillion in outstanding home mortgages, and attract huge amounts of capital, it is hard to imagine replacing them with several private investors whose cost of capital would be much higher. No one expects much to happen for a very long time on this issue.

Last week the stock markets took a tumble – does that mean that we’ll see a bounce back this week? Perhaps, but the continued nervousness about our economy and our banking system that caused stocks to sell off caused bonds to rally and rates to drop. And mortgage traders saw origination pick up a little, as folks locked when rates were dropping. Some believe that rates may stabilize this week, perhaps creep a little higher, with yet another Treasury auction to deal with ($44 billion in 2-yr tomorrow, $42 billion 5-yr Wednesday, and $32 billion in 7-yr. Thursday).

This week we can look forward to Existing Home Sales today at 10AM EST, Consumer Confidence tomorrow, and Durable Goods and New Home Sales on Wednesday. Thursday we have Jobless Claims, and on Friday we have GDP. Let’s not forget the Fed meeting this week, with no change in rates expected, and the Senate’s vote on Bernanke’s confirmation. The yield on the 10-yr is up to 3.63% and mortgage prices are worse between .125-.250.
The term “The Fed” encompasses many entities. It meant something different to Al Capone, for example, than a bond trader. (At least, I hope so.) For example, the futures market believes that there is almost a 90% chance that “the Fed” will keep rates somewhere between 0% and .25% through the end of April. The Federal Open Market Committee is responsible for open market operations, which influence “the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The FOMC meets eight times per year, with one of these meetings starting tomorrow, where it reviews “economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.” Although the minutes (released later) list numerous attendees, “the FOMC consists of twelve members–the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.” I think that we, the taxpayer, spring for the donuts and coffee. Maybe some fruit.

Are Down Payment Assistance Programs really “like zombies”, as one person wrote, in that they just won’t go away even when shot with a gun? Just ask the FHA, which has billions in losses from a down-payment-assistance program terminated in 2008, but is now dealing with a bill introduced by U.S. Representative Al Green, a Texas Democrat. “It would restart a program that allowed nonprofit groups to donate the 3 percent down payment low-income buyers needed to get FHA-insured mortgages. Sellers, often homebuilders, would then contribute that amount, plus a fee, to the nonprofits.” There are obviously the “put more Americans in homes” arguments, along with “put more people to work”. Night of the Living DAP.