One Announcement = $200 Billion In Liquidity, Now.

by Tyler Osby on March 19, 2008

Ofheo_seal_smlThis morning, The Office of Federal Housing Enterprise Oversight (OFHEO) announced it’s reducing Fannie Mae (FNM) and Freddie Mac’s (FRE) 30% capital surplus requirement to 20%.  Basically, they don’t have to have as much money in reserves, so they’ll be able to buy up some more mortgages and mortgage-backed securities.

By OFHEO making this ‘small’ change, it should free up as much as $200 billion of immediate liquidity to the market for mortgage-backed securities.  MarketWatch suggested this move should allow both Fannie and Freddie to buy or guarantee about $2 trillion in mortgages this year.  Wow.

Since I’m not a stock guy, I’m not going to go on telling you about how well the these two stocks did today.  But I will say that this built up some confidence in a highly emotional market and mortgage bonds improved by 72 basis points today.  This was a recovery of what happened on Tuesday after the Fed Cut.  My advice is to lock in before investors in the bond markets see the inflation concerns that are six months down the road. 
If you don’t believe me, just look at this.  History has a sick way of repeating itself.  Here’s what happened in the past few rate cuts:

Get ahead of the curve and make sure you’re getting good advice.  If you’re dealing with a mortgage consultant, ask them what their opinion on the market is.  If they don’t have one, find a mortgage consultant that does.

 

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