Mortgage bond prices rose last week pushing mortgage interest rates lower. Trading remained volatile as trading was thin amid the shortened holiday trading sessions. Mortgage bonds rallied nicely following the announcement that the Treasury and the Federal Reserve will spend $800 billion to help the ailing credit markets (details in article below).

For the week, interest rates on government and conventional loans fell by about 1.625 discount points.

The employment report Friday will be the most important data this week. Look for any additional moves by the Fed, the US Treasury, and legislative developments to also result in mortgage interest rate movements.

$800 Billion

The US Government finally took a needed step to stabilize home prices and help lower mortgage interest rates with the announcement of a new $800 billion spending plan. While rates on Treasury bonds had pushed historically low over the past few weeks, rates on mortgage bonds were way behind. The housing market remains in peril and the demand for mortgage bonds is not as strong as the demand for Treasuries. Fortunately, the Federal Reserve announced it would purchase $500 billion of mortgage-backed securities and another $100 billion of debt from Ginnie Mae, Fannie Mae, and Freddie Mac. This spending is an effort to improve the credit markets so businesses and consumers can get loans. Treasury Secretary Henry Paulson said, "This lack of affordable consumer credit undermines consumer spending and, as a result, weakens our economy." The Fed will also make $200 billion available to help with the consumer debt market. The initial reaction to the plan was very favorable for mortgage interest rates. The financial markets were relieved that something was done to address the housing industry.

Keep in mind that despite the recent improvements the housing sector still remains troubled. It will likely take more efforts to resolve the credit freeze. Expect more market volatility.