Mortgage rates are inching higher thus far this week after hitting new all-time lows almost daily last week. Last week was guided by frustration over the lack of a deal in Europe to deal with their critical debt crisis. This week mortgage rates are responding to hints and rumors of a deal that is soon to be announced. Consumers seeking a new mortgage to refinance a home or to purchase a home should lock in current mortgage rates if possible.
The “deal” that is supposedly about to be announced in Europe would take the recently created European Financial Stability Fund (EFSF), a fund managed by the European Central Bank (ECB), which purpose is to provide funding to beleaguered nations or to buy up their outstanding debt, and greatly expand its size through borrowing. The EFSF was originally to be capitalized by transfers from Eurozone members. However, direct funding has run into opposition from citizens in the larger and stronger European countries who don’t wish to pay for the mistakes of others in other nations. The proposed plan would by-pass the legislative bodies of member nations and simply be executed by the ECB.
Apparently, this plan is the one that has recently been pushed by the US in talks with European finance ministers. It seems ironic that American officials, who push for democratic reforms across the world, would be advocating such an un-democratic method of raising capital for the EFSF. Actually, upon further thought, perhaps it’s not ironic at all. Our Federal Reserve is not legislatively limited currently in making purchases of US debt that ultimately require the US Treasury to issue more debt to fund. What is ironic, however, is that this backdoor spending to pay for past debt with new debt may have a harder time in Europe than in the “no taxation without representation” US.
If this proposed deal is seen as a real solution than mortgage rates could climb as it would provide stability for the European and global economies. However, if this deal never materializes or creates a major backlash in Europe it could be a tremendous blow to the global economy, which could cause rates to drop.
With only the consumer confidence report due to day and a poor result widely expected, it will be Europe that impacts mortgage rates most directly today.
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