The Veridian Blog

The sky continued to fall last week for equities and traders flocked into the bond pits, sending yields plummeting to mid-May levels.  As a result, the benchmark 10-year note yielded 4.68% by week’s end.  Mortgage rates, however, did not react in lock step.  Rather, because many MBS (mortgage-backed securities) packages are no longer being purchased by investors – even those with the best credit ratings - the wholesale originators were forced to shut down completely and many have immediately discontinued “Alt-A” programs (those that feature low documentation loans to borrowers with credit ratings generally higher than those in subprime), Pay-Option ARMs and 2^nd mortgages.  Even the bigger banks raised rates on A-paper 30-year Jumbo loans on Thursday and Friday to frightening levels as to what I think is a knee-jerk reaction to the sudden evaporation of liquidity in the secondary market. 

It is without doubt an unsettling time in the mortgage markets right now the result of which will eventually put a greater sag on the housing sector.  That said, let me reassure every client and realtor we are dealing with, or have worked together in the past, that Veridian is unequivocally in no danger as a going concern.  Having been through several recessions, two stock market crashes, one big earthquake and a couple of what some of you would call “wars”, we understand the importance and appreciate the unpredictability of the cyclical nature of the real estate industry and the economy as a whole.  We therefore have always conducted business in a manner that is conducive to the goal of long-term survival and will endure this trial as well.

All eyes will be on the FOMC meeting this Tuesday to see what they say about the sudden credit crunch in the secondary markets.  In my opinion, the Fed may be forced to lower rates now by end of 2007 in anticipation of a likely recession around the corner.