Today Bloomberg reported that Goldman, Morgan Stanely and JP Morgan have applied to repay up to $45 billion in TARP funds.  This excerpt from the article pretty much says it all:

The three New York-based banks need approval from the Federal Reserve, their primary supervisor, to return the money, according to the people, who requested anonymity because the application process isn’t public. Spokesmen for the three banks declined to comment, as did Calvin Mitchell, a spokesman for the Federal Reserve Bank of New York.

If approved, the refunds would be the biggest yet to the $700 billion TARP program established by Congress last year during the investor furor that followed the bankruptcy of Lehman Brothers Holdings Inc. Banks are keen to repay the money to shake off restrictions on compensation and hiring that were imposed on TARP recipients in February.

It will be interesting to see who follows suit in this as Bank of America and Citi will now be put on the spot.  The issue at hand is the fact that Goldman, Morgan Stanley and JP Morgan were actually the better of the financial institutions while Bank of America and Citi continue to make horrible financial decisions.  I honestly hope that Bank of America and Citi get their feet on the ground before they feel they should have to start repaying the TARP money they desperately need.

What will this do to mortgage rates?  Well, if the economy is truly getting better, it is likely that this will push mortgage rates higher.  Honestly, I don’t think this is any indication of how the economy is doing so I feel that rates will continue to fall as state in my mortgage rates prediction article.

Knowing that the Fed scaled back greatly this week, I personally feel this is a week we are likely to see a slight uptick in mortgage rates.  Last week’s survey showed overall rates coming in at 4.78% which is one of the lowest readings in history.  This weeks mortgage rate predictions:

30 Year Fixed Rate Mortgage – 4.84%

Freddie Mac’s weekly survey reported mortgage rates at 4.84%.  It seemed quite obvious to me that the scaling back of MBS purchases would support higher mortgage rates.  Mortgage rates only bounced .06% but MANY financial gurus continue to predict mortgage rates to free fall each and every week.  Now that we have seen a short term bounce in mortgage rates, will the Fed amp up their MBS purchases to make sure rates continue their overall slide?  We will be the first to let you know the the Federal Reserve Bank releases the data depicting how much they dumped into mortgage backed securities.

Even though we got a short term bounce, it is still one of the best times in history to refinance or buy your first home; IF you can qualify and get through the mortgage application steps.  Do not be naive and think just because your credit is ok that you will be able to get a mortgage rate under 5%.  Realize that you need to be on very good financial ground to get the advertised rates you have seen.

Mortgage Rate Predictions

If in fact the dollar is strong, it would be wise to invest in American equities and the United States dollar so that is exactly the road that President Obama will take in the challenge.  Since March 22nd, here are his investments returns:

SPY – UP 11.8%
USD – UP 0.8%

While President Obama feels the dollar is strong, I believe the opposite therefore I invested in the commodities etfs of Energy, Precious and Base Metals and Agriculture.  Here are my investment returns since March 22nd:

DBA – DOWN 1.4%
DBB – UP 13%
DBE – DOWN 0.5%
DBP – DOWN 6.7%

I will be the first to admit that the president is whipping my rear end thus far; but I will always reiterate “one month a trend does not make.”  Don’t worry President Obama, I still have three and a half years to watch the value of the dollar decline as you and your adminstration continue to print dollars hand over fist.  I am still quite confident that the dollar will see great declines in the next few years due to YOUR actions.

Stay posted to Subprime Blogger to see the ongoing, up-to-date results of the President Obama vs Subprime Blogger investment challenge.

With the Federal Reserve printing money at will, let Subprime Blogger help you with your inflation investments.  By making the correct inflation investments over the next few years, you could make a ton of money.

Fear is an emotional response to threats or danger.  Fear on the stock market is measured by the VXO, the exchange volatility index.  The greater the amount of volatility, the higher the VXO will rise.  Historically the VXO fluctuates between 10 and 35.  On October 19th, 1987, the VXO skyrocketed to 150.2 at the close of the market and accelerated to 172.8 intraday the following day.  These numbers are quite extreme as that was the largest single day decline in the history of the markets and would have never happened with any type of technologies to stop trading.

The first day after the US House passed the Bailout Plan bill in 2008, fear reached a level that had never been seen before.  The VXO rocketed to 69.4 intraday which was a post 1987 record.  The current VXO has recently accelerated to over 100 in early October.  These are numbers never seen in the modern stock market.  Fear in the current market is the highest it has been since 1987.  It took almost TWO years to regain the one day crash in 1987, so who really knows how long it will take to regain this multi-month crash?

During this time, the Federal Reserve Bank has decided to stimulate the economy by making it easier to borrow money.  They do this by lowering the Fed Funds Rate.  The Fed Funds Rate is currently 1.0%, but the unsettling part is, we cannot go below zero.  At one point, decreasing rates has to stop.  This is a VERY interesting time in history as rates are low and inflation is up.  Anyone have any ideas on how this will work itself out?

Read more about the stock market at “We Haven’t Seen the Bottom in the Stock Markets Yet”

Please use Subprime Blogger to get your mortgage rate trends.  With average mortgage rates heading lower, make sure to keep up with current trends.

A great article by Miranda at Yielding Wealth was published today and makes a great deal of sense.  The Federal Reserve is doing their best to make it easier to borrow money by lowering the Fed Funds Rate.  While this is a good idea in principal, it might not turn out the way they would like in the current state of the economy.

Companies that issue credit have already been burned one too many times therefore they are going to be extremely selective.  It is going to be much harder for individuals with a lower than average credit score to receive a loan due to recent history.  It is also likely that the companies loaning money will start to reduce the amout of credit certain individuals already have.  If this is the case, less money will be going into the economy and we already know where that can lead.

Another major issue is the fact that companies issuing credit are struggling for cash, therefore they will not be able to lend in the ways they once did.  Ultimately, in the current state of the economy, those with money, preferably cash, will continue to benefit greatly.  Do you agree with this assessment?

Read more about the Federal Reserve Bank at “End the Federal Reserve Bank”