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Senate on course to vote Saturday on housing bill
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With Congress hoping that its measure would restore some economic stability, a survey released on Thursday by Freddie Mac reported that U.S. mortgage rates spiked upward this week amid fears of rising inflation, housing market weakness and possible Federal Reserve short-term interest rate increases.
Regional bank National City Corp, based in Cleveland, posted a $1.76 billion second-quarter loss on Thursday, hurt in part by real estate loan losses.
Although the housing bill has boosted stock market confidence in the GSEs' ability to ride out the housing slump, other news on Thursday drove home to investors the severity of the problems ahead, said Michael Cheah, portfolio manager at AIG SunAmerica Asset Management in Jersey City, New Jersey.
"The big picture is that home prices are still going to drop more, even from here," Cheah said.
As shares sold off, risk premiums on Fannie and Freddie agency notes narrowed, with yield spreads as much as 8 basis points tighter on Thursday, indicating debt markets were encouraged by Congress' progress with the housing bill.
New York Federal Reserve Bank President Timothy Geither told a House committee on Thursday that recent financial crises justify big changes in financial oversight at Fannie and Freddie, a project that lawmakers are targeting for 2009.
Securities and Exchange Commission Chairman Christopher Cox told the same hearing his agency would soon offer a proposal to expand emergency curbs on short selling of 19 financial stocks, including Fannie and Freddie, to the entire market.
In the Senate, hopes for a quick housing bill vote faded on Wednesday when South Carolina Republican Sen. Jim DeMint tried to attach an amendment opposed by Democrats. Senate Majority Leader Harry Reid, a Nevada Democrat, invoked a procedural tactic to limit debate, which set up a stand-off with DeMint, whose ability to block a final vote will expire by Saturday.
On Friday, the House Financial Services Committee will hold a hearing on the role of mortgage servicers in the market.
(Additional reporting by Steven C. Johnson, John Parry, Jonathan Stempel and Lynn Adler in New York, with Richard Cowan and Alister Bull in Washington; Editing by Leslie Adler)
