Mortgage Rates Tick Higher as Stocks Rise, August 23, 2011

President Obama , Congressional Members and Wall Street traders  are enjoying downtime with their families before the school year starts and the end of year push begins. The stock market is ticking higher this week with limited economic data and hopes that Federal Reserve Chairman Ben Bernanke will allude to further stimulus steps in his speech this Friday in Jackson Hole, Wyoming.  Current mortgage rates are being dragged higher by the preference for stocks thus far this week.

Today we will get a look at new home sales, yet no market impact is expected.  Tomorrow’s Durable Goods report will be far more important in providing a direction to the markets.  However, while pundits over the past few weeks have been chanting in a virtual chorus “recession is coming, recession is coming”, actual expectations for tomorrow’s report are that it will show…slow growth.

Unfortunately, in a nation that loves the extremes, slow growth can be excruciating.  But short of structural changes to our economy in the US or some outside event (European Debt/Bank Crisis, trouble with oil supply, economic disruption in China or a natural disaster) slow growth is our lot for an extended period.

The effects feel similar to the late 1970’s when unemployment was high (though not this high) and interest rates were at record highs (we are near record lows today).  The feeling as President Carter described it is “malaise”, a general feeling of being “out of sorts”.  Back then it took a political change with a new approach to governing.  This time it will take a political change as well, not necessarily a change in the people (though that might be required), but most certainly a change in attitude.  Unless we get spending, tax and regulatory reform that fundamentally changes the fiscal equation in the US, malaise and its components of slow growth and high unemployment are here to stay.

An idea that is being floated by some political and economic analysts that impacts consumers and their mortgages is a revision to the Home Affordability Refinance Program (HARP). This program was created to assist “responsible homeowners” to refinance when their home mortgage balances exceed the current value of their home.  Despite having been available for three years, the program has not been effective in enabling mass refinancing due to some major flaws.  Chief among the flaws is a lack of protection for new mortgage originators if the refinanced mortgage goes into default subsequent to the refinancing.  Simply modifying the program to indemnify originators from potential loan buybacks could unleash the banks and other originators to go out, find and refinance these loans.