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Mortgage rates; US debt is infinite? Fannie/Freddie spends $$$ 💸

By March 2, 2021 No Comments

Mortgage rates head higher and here’s what that mean

Today’s Rise&Shred is focused on tackling the biggest issues currently facing the housing and mortgage industry. 

Let’s jump right in. Just about everyone thinks mortgage rates will start to head upwards and no one is worried about it.

A recent rise in interest rates hints that a recovery is on the way, according to the NYTimes (paywall article here, and the two following links) but it could also mean harder choices ahead on spending.

Mix that with the fact that states actually did not suffer as poorly as expected, economically, and it becomes good news all-around.

[Related: Mortgage rate forecast for March 2021: Upward pressure predicted.]

The Federal Reserve helped indirectly by making credit widely available at very low interest rates, prompting investors to leave the safety of the bond markets and buy stocks. That fueled an enormous stock-market rally, which ultimately gave states including New Jersey capital gains to tax.

Here’s why this is so important.

The coming surge in rates brings an end to a period of several months when borrowing was essentially free, seemingly far into the future. For the Biden administration and the Federal Reserve, that implies that the free-lunch stage of the crisis is ending.

“Put it all together, and the surge in rates so far is basically an optimistic sign that the post-pandemic economy will mark the end of a long period of sluggish growth,” writes Neil Irwin in the NYT. “But the speed of the adjustment is a reminder that the line between too hot and just right is a narrow one.”

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You are wrong to think the government can’t borrow $$$ forever

Most of the getting-rosier economic outlooks hinge on the coming of the third round of stimulus.

The Biden Administration is looking for another $1.9 trillion to keep the economy going, and they’ll probably get it. But won’t that bankrupt the nation, if this keeps up?
The St. Louis Fed says not to worry! Why? Because everything you know about debt, well, it’s simply wrong. 

“Most people consider the national debt in the same way they would the debt of a household, in which high levels of debt and deficit spending are not sustainable and must be paid back or renegotiated at some point,” they say in this blog, about how we don’t know what’s really going on.

“While household debt must eventually be repaid, a government can, in principle, rollover its debt indefinitely… How is that possible? The short answer lies in U.S. Treasury bonds —  marketable securities that are used in financial markets as a form of money.”

Is that the same U.S. Treasury market that we spent the last week writing about how volatile it can be? Actually, it is the same U.S. Treasury market that we spent the last week writing about how volatile it can be!

But that’s OK, cause we’re wrong, all wrong, to be so worried about taking on all this new debt!

Seriously though. These are very big poker chips the Federal government is gambling with, here. Some say it’s too much, some say it’s not enough.

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Here’s why we need all this money

On an unrelated note, but worth mentioning, Genworth continues to prepare for a potential partial IPO of Genworth's U.S. Mortgage Insurance business, and just got out of its Australian operations to help it get there.

Back to the big issues. A new report from the CFPB shows that 11 million families face homelessness once state and federal eviction and foreclosure moratoria are lifted. 

That puts 11 million families in the position of Morrie in Good Fellas, without more Federal help. Watch this NSFW clip and you’ll see what we mean. 

Like the St. Louis Fed, this piece of research also comes from a government-linked entity, this time the CFPB.

The CFPB report finds that 2.1 million families are behind at least three months on mortgage payments, while 8.8 million are behind on rent. Homeowners alone are estimated to owe almost $90 billion in missed payments. The last time this many families were behind on their mortgages was during the Great Recession, the report states.

“We have very little time to prevent millions of families from losing their homes to eviction and foreclosure,” warns CFPB Acting Director Dave Uejio. “We want everyone—homeowners and renters, landlords, and mortgage servicers—to have the tools they need now to avoid unnecessary evictions and foreclosures.”

Meanwhile, additional help to those most in need is on the way.
FHFA Director Mark Calabria announced that he has authorized the disbursement of $1.09 billion for Fannie Mae an

d Freddie Mac's affordable housing allocations for 2020. 

This is the largest amount ever disbursed and more than double what was provided last year.
Of the Enterprises' provided funds, $711 million will go to the U.S. Department of Housing and Urban Development (HUD)for the Housing Trust Fund, an increase from the $326.4 million disbursed for 2019. The sum of $383 million will go to the Department of the Treasury for the Capital Magnet Fund, an increase from the $175.8 million disbursed for 2019.

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