In the financial panic underway now, frightened money is pouring into Treasurys, but for the first time in modern experience the overflow is only a modest benefit to mortgages. The 10-year Treasury note is all the way to 4.78 percent, down a half-percent in three weeks, but mortgages are stuck near 6.625 percent, just a hair off the June high. This disconnect is the mark of credit suspicion extending all the way into Fannie/Freddie "A" paper -- very much misplaced concern, says here. Mortgage defaults will spread into Alt-A, and some parts of "A" adjustable-rate pools, but the old-fashioned, main-line Agency underwriting will hold up. The Treasury-mortgage spread should begin to close, to the benefit of mortgage applicants. There are two separate credit events underway, and a gazillion money bloggers are trying to combine the two into a financial cascade. Don't buy (yet). Event one is the still-orderly downside to the biggest-ever boom in home prices. Event number two is the disorderly...
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