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AIG receives lifeline, so why did this impact mortgage rates?

Posted on September 17, 2008 by Ray Williams.

Yesterday after the fed meeting ended, it was determined that the fed funds rate would stay at 2% for the time being. As soon as the traders got a whisper that AIG was going to receive a loan to avoid filing bankruptcy the stock market rallied. This sent mortgage backed securities spiraling downward and led to lenders sucking the juice out of the lower rates. With that we went from seeing rates in the mid 5% range to 6% in one short afternoon.

Today stocks are under pressure and a band aid has been put over the nation’s largest insurer’s broken bones. At a 2 year pay back what turns out to be around 11.31% interest to the government, it is a steep price to pay for the insurance giant. Although it would have had a huge international problem on the markets if they had to file for bankruptcy.

Keep a lookout for rates as this wild and crazy ride continues to go on!

Ray

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