Despite the almost daily onslaught of potentially disastrous news from Europe, current mortgages rates have held very true to current levels for weeks. The pattern over the past 10 days or so has been the same—mortgage-backed securities start the day weak but rally towards the closing of the market. Lenders seemingly aware of this have chosen in large numbers to simply leave retail rates alone, waiting for bigger, more substantive moves to actually modify their “street price”. Today may actually see improvement in rates for home purchases and refinances as MBS prices are beginning the day flat. If the pattern holds then MBS prices would rally toward the close and rates may follow lower.
The European financial news du jour is a negative ratings agency move for 15 European nations. S&P has placed 15 nations, including Germany, on notice for a potential credit ratings downgrade. Analysts are dismissing the move as somewhat of a moot point given that the markets are already pricing the debt of these nations as if a downgrade had already occurred. Much like the ratings agencies response to the US mortgage crisis, the downgrades come when the trouble has already occurred.
In a related move S&P has just announced that it is placing the debt of the European Financial Stability Fund (EFSF) on “CreditWatch Negative” for a potential one or two-notch downgrade. The EFSF is one of the early attempts by the Eurozone countries to resolve this crisis. It is essentially a loan fund that is lending money to troubled member nations. It also has the ability to borrow money and issue bonds which are the subject of this move by S&P.
I guess S&P is speaking pretty clearly today suggesting that the European Financial Summit scheduled for Friday had better produce real, sustainable results.
In the US today there are no economic reports that will alter the markets. Consequently, it will be a European news driven day. Thus far that means no change in mortgage rates.
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