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European
Concerns Increase
Increased
concerns about Europe helped mortgage rates improve this week, although the
impact of the recently passed extension to the payroll tax reduction is
beginning to push up mortgage rates for certain loans (discussed below).
The news
from Europe was mostly negative this week. Economic growth in Germany was
slower than expected. Negotiations on restructuring Greek debt did not
progress as planned, increasing the risk of default. S&P is downgrading
the debt of several European countries, including France. Finally, the
European Central Bank (ECB) provided no relief, as it gave no indication
that it would increase the level of aid available to troubled countries. As
a result, investors shifted funds to relatively safer investments,
including US mortgage-backed securities (MBS), which helped mortgage rates move lower.
The
recently passed extension to the temporary payroll tax reduction contained
a lightly publicized revenue raising provision to increase the guarantee
fees charged on Fannie Mae and Freddie Mac loans. This fee results in
higher rates for borrowers, and mortgage rates for loans not expected to
close within the next month or so have begun to reflect this coming
increase in guarantee fees.
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