•Pressure Mounts for Fannie and Freddie to Write Down Mortgages

  • US tax changes could mark start of bond bear market, warns economist – Investors have become nervous about the long-term outlook for the US economy after politicians struck a deal this week which extends tax cuts across the economy in exchange for extensions to payments to the unemployed. Tim Drayson, economist at Legal & General Investment Management, said that the new rules – which are being introduced despite existing worries about the high levels of US government debt – mean we may already be witnessing the start of a bear market in treasuries. On Tuesday, US Treasuries suffered their biggest sell-off in two years and the selling continued on Wednesday, pushing yields on US ten year borrowing to 3.28%, up from 2.93% on Monday morning.
  • Zapatero Warns Spain Strikers After State of Emergency Declared –  Spanish Prime Minister Jose Luis Rodriguez Zapatero said he’ll use all tools at his disposal to fight future strikes after declaring a state of emergency to break a walkout by air-traffic controllers. The government “won’t hesitate” to use “all the instruments of the rule of law to avoid or put an end to situations like those we saw last weekend,” he told parliament in Madrid today in a session to explain the steps taken by the government to break the wildcat strike. The government “intends to maintain or if necessary seek an extension of the state of emergency,” depending on the situation, he said. The Socialist premier, facing his lowest poll ratings since coming to power in 2004, declared a state of emergency on Dec. 4 and put air traffic under military control to end the walkout during a holiday weekend. The strike followed government plans to partly privatize the airport operator as part of budget- cutting measures aimed at stemming the sovereign-debt crisis.

    US Treasuries hit by biggest sell-off since Lehman – US Treasuries suffered their biggest two-day sell-off since the collapse of Lehman Brothers, following a torrid month that has seen borrowing costs for western governments soar. Germany, Japan and the US have all seen their benchmark market interest rates rise by more than a quarter in the past month while the UK’s has risen by nearly a fifth. You could argue that we are at a new stage where the global cost of capital goes higher and higher,” said Steven Major, global head of fixed income research at HSBC. The yield on 10-year US Treasuries hit a six-month high of 3.33 per cent on Wednesday, up 0.39 percentage points from Monday and 1 percentage point higher than its October low. Japanese five-year yields also rose the most in two years, while Germany’s benchmark borrowing costs hit 3 per cent. “People are getting out of the market and moving to the sidelines, feeling shellshocked at the speed of the rise in yields,” said David Ader, strategist at CRT Capital. US 10-year yields have risen by about 0.76 percentage points since November 8, those of Germany by 0.62 percentage points, the UK by 0.53 percentage points and Japan by 0.29 percentage points as the prices of the bonds has fallen.

  • Pressure Mounts for Fannie and Freddie to Write Down Mortgages – With property values still tumbling, it comes as no surprise that nearly a quarter of the nation’s mortgage borrowers owe more on their loan than the home is worth. Industry studies support the consensus that the farther a borrower sinks into negative equity, the more likely they are to throw in the towel.  The severity of this catch-22 is now top-of-mind for government officials. The administration is reportedly pressuring Fannie Mae and Freddie Mac – who together own or guarantee half of the nation’s home mortgages – to make principal write-downs a key component of their foreclosure prevention efforts.  The two GSEs are currently in talks with the White House and federal housing officials who are advocating for Fannie and Freddie’s participation in the government’s newest initiatives to reduce loan balances for borrowers who are underwater, the Wall Street Journal reported Wednesday, citing “people familiar with the situation.” A second initiative that the GSEs have yet to sign on to is the Federal Housing Administration’s (FHA) refinance program for underwater borrowers, which was rolled out in early August. Under the program, which is also voluntary, the federal agency will offer new FHA-insured mortgages to borrowers whose lenders agree to write off at least 10 percent of the unpaid principal balance.

    Biden: Here’s the Deal’A day after walking House Democrats through the tax deal President Barack Obama cut with congressional Republicans, Vice President Joe Biden breaks it down for the rest of us. The highlights: – No tax increase for middle-class families, saving the typical household $3,000 – The 2% cut in Social Security taxes will gives workers additional spending money every pay period – An extension of jobless benefits for the long-term unemployed means “good news for local economies because unemployment insurance dollars are among the most likely to be spent quickly.” His email directs readers to another White House White Board video from Austan Goolsbee, one of the president’s chief economic advisers.

    U.S. tax deal squeezes potential home buyers – Yields in the U.S. Treasury bond market spiked on Wednesday as investors worried the deal would inflate further the ballooning U.S. deficit, pushing mortgage rates upward just as the U.S. housing market was showing some signs of recovery. The average 30-year fixed mortgage rate has climbed nearly a half-percentage point since early October to 4.66 percent last week, the Mortgage Bankers Association said on Wednesday. Excluding points, or upfront fees paid by the borrower to the lender for a lower rate, the effective rate for a 30-year fixed-rate mortgage was 4.85 percent last week, the MBA said. The MBA said its refinancing index last week plunged to its lowest level since June 4, and the impact doesn’t include the bond market’s rout that has sent the influential 10-year U.S. Treasury note’s yield soaring by a quarter percentage point since Friday, December 3.

     Mortgage Rates for U.S. Loans Jump to Five-Month High – U.S. mortgage rates surged to a five- month high, tracking a jump in bond yields after President Barack Obama agreed to extend tax cuts for two years.  The average rate for a 30-year fixed loan increased to 4.61 percent in the week ended today from 4.46 percent, the fourth week of gains, Freddie Mac said in a statement. The average 15- year rate climbed to 3.96 percent from 3.81 percent, The agreement to extend tax cuts sent yields on mortgage- bond securities to six-month highs yesterday on speculation that the budget deficit may widen and inflation will accelerate. Rising borrowing costs from record-low levels may spur some prospective homebuyers to make purchases to lock in low rates,

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