Friday, October 18, 2013

Congress Reaches Deal

Mortgage Time
Mortgage Market News for the week ending October 18, 2013

Congress approved a deal on Wednesday to raise the debt ceiling and to fund the government for a few months. The news lifted both stocks and bonds. The S&P 500 index reached an all-time high. Mortgage rates also improved nicely after the deal was reported.
The deal extends the government's borrowing authority until February 7, removing the risk of default. The deal also funds the government until January 15, ending the shutdown. It provides more time for negotiations, but it does not bring the two sides any closer to reaching a long-term agreement on the major fiscal issues. For mortgage markets, even the slight risk of default had been enough to prevent some investors from purchasing government bonds, including mortgage-backed securities (MBS). After the deal, these investors resumed their purchases of MBS, which lifted MBS prices and lowered mortgage rates.
Mortgage rates benefited from the agreement for another reason. Investors now think that the Fed will wait longer to begin to taper its bond purchase program. Fed officials have expressed reluctance to reduce monetary stimulus while future fiscal policy remains uncertain. If history is any indication, the debate in Congress over a longer-term budget and deficit reduction package likely will continue right to the extended dates. In addition, before tapering the Fed will want to see how much the government shutdown slowed the economy. The flow of economic data produced by the government will resume next week, but it will take some time to sort out the impact of the shutdown from the underlying strength of the economy.

Davis Orebaugh
Mortgage Consultant
NMLS #:   / NC 323545
OnQ Logo large.jpgNMLS # 5645
2501 Blue Ridge Road, Suite 370
Raleigh, NC 27607
Phone:  919.926.7554 Cell:  919.740.7049 Direct Fax:  919.590.1767     /