Federal ReserveFederal Reserve chairman Ben Bernanke announced today that they may be easing the quantitative easing programs as early as this year.  This program includes the purchases of mortgage backed securities (MBS) which are the packaged residential mortgages sold by banks and mortgage companies.  The slowing of these purchases would take affect if the unemployment rates hits 6.5% and inflation reaches 2%.  The phase out may be completed by 2014 which changes the mortgage lending landscape by pushing higher mortgage interest rates.

The quantitate easing programs were put in place to help stabilize the housing market and United States economy after the economic collapse a few year ago. Bernanke goes on to explain that the mortgage markets, Fannie Mae, and Freddie Mac, have become too reliant on the Fed’s buying program. Other than this crutch, the markets seem to be functioning well.

The effects on mortgage rates will be drastic which will lead to sharp increases in interest rates for both refinances and new purchase loans. Without the support of the government and the Fed’s buying program it is rumored that the 30 year mortgage may in itself be phased out. As it currently stands, the 30 year fixed rate mortgage is the most popular mortgage term as it allows low fixed payments.

Immediately following today’s announcement, both the treasuries and MBS market saw a massive selloff which has an immediate negative affect on interest rates.  If you are purchasing a home or considering refinancing your current mortgage it is highly recommended that you work with your loan officer to quickly lock your interest rate when possible to avoid further rate increases.