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Mortgage Bonds sure
have been fluctuating in wild fashion so far the this week and this
morning was no exception. In the first hour of trading,
Mortgage Bonds had already traded in a 44 basis points.
Last night, the Fed threw insurance giant, AIG, an $85
Billion lifeline to keep it from falling into bankruptcy. The company
received a 2-year $85 Billion loan from the Federal Reserve in return for a
79.9% stake in the company's stock. The loan has to be paid back in 24
months, which may give AIG time to sell assets to cover the
bill. This was a deal that the Fed believed had to come together as an AIG
bankruptcy would have had enormous, far-reaching negative effects in the global
economy. The saving of AIG has done
little to help the overall stock market, which has been trading
sharply lower today.
Housing Starts for August were 895,000, below
estimates of 950,000. This is a 17-year low. Building Permits
were also below expectations. This wasn't a good number, but the market
was already expecting something on the weak side. There is a lot of existing
inventory to clear out before the numbers on this front will
improve.
What is going on with LIBOR, you may be asking? LIBOR
as well as the actual Fed Fund Rate, are rates that banks charge each
other. And while the Fed has set the Fed Funds target rate at 2%, banks
are jacking this up closer to 6%. The same is happening to LIBOR.
The reason is due to a lack of confidence that banks will make good on funds
borrowed from each other. The AIG scare, IndyMac Bank, Lehman, and others
have spooked banks into thinking that they may not be paid back. And a low
2% rate is just not enough to justify the risks of lending in today's
environment.
This means that those with ARMs tied to LIBOR
that are adjusting soon should immediately contact a mortgage advisor to
determine if a refinance to lower fixed rates makes
sense. | 
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