Friday, December 19, 2008

Mortgage Rates at 37 Year Low; Oil Falls Below $37; Obama Aims to Increase Financial Regulation

Mortgage Rates at 37 Year Low

The benchmark 30-year fixed-rate mortgage tumbled to a national average 5.17% this week, the lowest level since Freddie Mac began its weekly rate survey in 1971.

With the Federal Reserve cutting its interest rates to near 0% and a continued decline in rates on the long-term Treasury notes that mortgages closely track, rates on other types of mortgages dropped again this week, although not as much as the 30-year.

"Interest rates for 30-year fixed-rate mortgage rates fell for the seventh consecutive week, moving these rates to the lowest since the survey began in April 1971," said Frank Nothaft, Freddie Mac chief economist. "The decline was supported by the Federal Reserve announcement on Dec. 16, when it cut the federal funds target to a record low and stated it stood ready to expand its purchases of mortgage-related assets as conditions warrant."

The 30-year mortgage fell for the seventh consecutive week, dropping from 5.47% a week ago. A year ago the 30-year averaged 6.14%. It took a national average 0.7 point to obtain that rate, though; a point is 1% of the loan amount, paid upfront as prepaid interest.

The 15-year fixed-rate mortgage averaged 4.92% with an average 0.7 point, down from last week when it averaged 5.20%. A year ago the 15-year loan averaged 5.79%. The 15-year mortgage has not been lower since April 1, 2004, when it averaged 4.84%.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 5.60%, with an average 0.6 point, down from last week when it averaged 5.82%. A year ago, the 5-year ARM averaged 5.90%.

One-year Treasury-indexed ARMs averaged 4.94% this week with an average 0.5 point, down from last week when it averaged 5.09%. At this time last year, the 1-year ARM averaged 5.51%.

The sharp decline in rates has spurred a flood of mortgage refinance applications, the Mortgage Bankers Association said Wednesday.

Oil Falls Below $37

Crude tumbled below $37 a barrel Thursday to their lowest level in at least four years, underscoring the market's preoccupation with a sharp slowdown in oil demand.
Year to date, oil prices have fallen 59% and are 75% since their record level above $147 a barrel in July.

Oil for January delivery fell $3.84, or 9.6%, to end at $36.22 a barrel on the NYMEX. Not since the middle of 2004 has the price reached this level. Earlier, the contract hit an intraday low of $35.98 a barrel on Globex. The January contract will expire at the end of trading on Friday. The February crude contract, which showed greater trading volume, fell $2.94 to end at $41.67 a barrel on NYMEX.

"Below $38, we don't see anything until the $25 level," said Edward Meir, an analyst at MF Global. "This is admittedly a rather dramatic set of chart-based forecasts for a complex that only six months ago looked like it could do no wrong on the upside."

Obama Aims to Increase Financial Regulation

President-elect Barack Obama promised on Thursday to strengthen financial regulatory agencies and crack down on runaway "greed and scheming" in an effort to restore stability to a reeling U.S. economic system.

Obama named veteran regulator Mary Schapiro as chairwoman of the Securities and Exchange Commission and Gary Gensler to head the Commodity Futures Trading Commission. The president-elect said he would charge them with leading a broad overhaul of the financial regulatory system.

"These individuals will help put in place new, common-sense rules of the road that will protect investors, consumers and our entire economy from fraud and manipulation by an irresponsible few," Obama told reporters in Chicago.

"These rules will reward the industriousness and entrepreneurial spirit that's always been the engine of our prosperity, and crack down on the culture of greed and scheming that has led us to this day of reckoning," he said.

Obama also named Georgetown University law professor Daniel Tarullo to fill one of the seven seats on the Federal Reserve Board, which is battling to ease a credit crisis and fend off a recession.

The SEC, created after the 1929 stock market crash to police markets and restore investor confidence, has come under heavy criticism after the Wall Street meltdown and financial scandals exposed lapses in its oversight.

The collapses of investment firms Bear Stearns and Lehman Brothers prompted scathing criticism from lawmakers who said the agency, charged with monitoring publicly traded firms, should have flagged the problems earlier.

Criticism has intensified with the $50 billion investment fraud -- one of the biggest in history -- allegedly carried out over many years by Bernard Madoff.

"We have been asleep at the switch. Not just some of the regulatory agencies, but some of the congressional committees that might have been taking a look at this stuff," Obama said.

Obama, who takes office on January 20, said regulatory reform would be one of his earliest initiatives and he would release a detailed plan for regulatory changes. He said there was a need to potentially consolidate some regulatory agencies.

Under one scenario backed by some lawmakers, the SEC would be merged with the CFTC, which oversees the markets for instruments such as futures contracts and options on oil, coffee, sugar and other commodities.

"We are going to have to greatly strengthen our regulatory apparatus, and update it from what worked for a 20th century financial system, so that it works in a 21st century financial system," Obama told reporters.

"I think the American people right now are feeling frustrated that there's not a lot of adult supervision out there," he said.

Schapiro is now chief executive of the Financial Industry Regulatory Authority, a self-regulatory body for the securities industry. She was an SEC commissioner for six years, then became chairwoman of the Commodity Futures Trading Commission in 1994 during the Clinton administration.

Schapiro, a lawyer, is a member of the board of directors of Duke Energy Corp and Kraft Foods Inc. If confirmed by the Senate, Schapiro would replace SEC Chairman Christopher Cox, a Republican appointed by President George W. Bush.

Gensler was a partner at Goldman Sachs for a decade and was undersecretary of the Treasury in the Clinton administration.

Tarullo, Obama's choice for the Fed, has been one of Obama's top economic policy advisers. The 57-year-old Tarullo was President Bill Clinton's top adviser on international economic policy. He would replace Fed Governor Randall Kroszner, whose term expired in January, in a move that still leaves two vacancies that Obama can fill.

Obama is hoping to complete most of his Cabinet picks by the end of the week, leaving Chicago on Saturday for a vacation in Hawaii with his family.

Sources: MarketWatch, Reuters

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