• Rates have notably slipped today in response to the decision to release the remaining $350 billion in Troubled Asset Relief Program (lovingly known as the TARP) funds.  Here’s the short list of why this is not boding well for mortgage investors:

    1) Nobody knows where the 1st $350 billion ran off to and no one really thinks it did what it was supposed to do toward stabilizing our financial markets.

    2) Spending this money with another $825 billion (and growing) Obamanomics stimulus package waiting in the wings means a mountain of federal debt is just around the corner.  Uncle Sam will deal with that debt, in part, by issuing bonds.

    3) A huge influx in the bond supply will force interest rates up on all fixed income investments (like mortgages) to attract investor attention.

    Combine this with the indigestion Bank of America is feeling after gobbling up Merrill Lynch (who happened to post a $15.3 billion dollar loss this quarter) and you’ve got the recipe for uncomfortable investors.  Consequently, $20 billion of the TARP funds is going to BoA to offset that loss.

    I’m not saying that these decisions are dumb or unnecessary.  Lord only knows that I would be hiding under my desk sucking my thumb if it were my responsibility to allocate these funds.  But the fact re­mains: rates are creeping back upward.

    Now, Uncle Sam will do what he can to keep rates down through direct purchase of mortgage-backed securities.  However, keeping the average 30 year fixed at or below 5% is going to require the coopera­tion of independent investors, and it’s looking more and more like that isn’t going to happen.

    In the macroeconomic world, our rate of consumer inflation came in at the lowest annualized reading in over 50 years of +0.1%.  This is a bright spot in otherwise dismal times, providing much needed financial relief for folks like you and me.

    Speaking of bright spots, I have to take a moment to mention Captain Chelsey B. Sullenberger III, the ridiculously talented pilot who floated an Airbus 320 to a splash landing in the Hudson River shortly after geese destroyed the engines.   After crash landing the plane and helping all 155 passengers off the plane, the Captain walked the aisles twice (while the plane was still sinking) to ensure no one was left aboard.   Aside from two broken legs, no one was hurt or killed.  It’s always refreshing to hear about real American heroes, and Captain Sullenberger certainly has earned that title.

    I always knew those geese were up to no good…

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