Interest rates on 30-year fixed-rate mortgages were at 6.38 per cent yesterday, against 5.87 per cent before the Treasury's latest actions, according to Bankrate.com.
The Treasury's plan to take equity stakes in US banks and to guarantee new bank debt, announced on Tuesday, prompted investors to sell securities issued by the US government and the government-sponsored mortgage agencies and switch to higher yielding bank debt.
The expanding government role to support the banking sector meant investors could enjoy higher yields while taking on the same level of risk. But the dramatic sell-off in paper issued by Fannie Mae and Freddie Mac pushed the cost of funding new mortgages significantly higher.
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