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Uncharted Territory Leads to the Unexpected

The current financial path of the U.S. economy is like taking a white water rafting excursion down a river that has never been charted. Where the next water falls occur, or snake like turn takes place or swirling rapids lies in wait is at best an educated guess. The recent downgrade by Standard and Poor’s, S & P, of U.S. debt obligations from AAA to AA+ led many economic forecasters to expect a rise in home mortgage rates. Just the opposite happened on the first day of trading after the S & P downgrade. Daily mortgage interest rates fell.

On Monday, August 8, 2011, the first trading day after the S & P downgrade of U.S. debit, investors ran to what they considered a safe haven, U.S. Treasury Bills. The rates on these bills lowered. The Federal Housing Administration, FHA, uses U.S. Treasury Bill rates as a benchmark for setting FHA mortgage rates. Therefore, FHA rates also dropped. FHA does not require lenders use the rate established for FHA mortgage rates. FHA sets a bench mark for lenders. Some lenders will offer lower rates. In exchange, they may charge points so that the actual yield on the loan exceeds the note rate.

In June of this year, the average FHA rate was 4.81 percent. According the Mortgage Bankers Association, MBA, 30-year fixed mortgage interest rates averaged 4.5 percent during the last week in July. On Monday, August 8, the rate slid 20 basis points to 4.3 percent. Monitoring daily mortgage interest rates reflects the volatility of the current financial health of the U.S.

The MBA does not expect this trend to continue and sees rates making a slow gradual rise. This thought is shared by others including Ira Solomon, dean of Tulane University’s A. B. Freeman School of Business. Current FHA mortgage rates are at levels not seen since the 1950s. The MBA sees 30-year fixed rates at 5 percent by the end of this year. They estimate an additional increase of 50 basis points during 2012 raising the rate to 5.5 percent by the end of that year.

The white water rafting trip is not over. Uncharted territory lies ahead. Financial history is being made, and it’s reflected in daily mortgage interest rates.