Federal 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.
The feds have just announced that they will be keeping the Federal Reserve rates low until 2014. In the past they announced that rates would remain low until the middle of 2013, which helped the market confidence and ensures recovery. The recovery has been present however it has not been as “booming” as economic analysts were hoping.
As with everything that relates to the economy, there is always some sort of backlash. Unfortunately, it’s not always good backlash either but this was one of the rare instances where the markets reacted in a positive way. Once the announcement was made, the Dow rose near 200-points by 11AM after markets opened. There are economists warning of this only being a “temporary” solution to our problems though. Much like a band-aid, we may be covering up the wound for now and allowing it to slightly heal but more attention will be required to fully-heal in the near future.
There is also the looming possibility that the Fed could potentially raise interest rates sooner if the economy heads within the right direction. The following are words from a senior economist regarding the Fed’s announcement,
“It’s not a vow or a commitment. If the outlook changes on the unemployment or inflation, the Fed reserves the right to change its mind.”
So it would be ill advised to count on these low rates to remain intact until the point the Federal Reserve stated. As the current economic situation stands, we are slowly improving and it seems we will continue to improve in just about every key-aspect so the chances of the Fed’s switching their stance on lower rates has potential.
This announcement from the Fed’s came after their annual voting-member shuffle. With the changes made to the members in-tact, we are introduced to four new members; John Williams of San Francisco, Dennis Lockheart of Atlanta, Sandra Pianalto of Cleveland and Jeffrey Lacker of Richmond. Besides this shuffle amongst the members, the first Fed meeting of this year is a noteworthy situation as this will be the very first time they release economic forecasts. These forecasts are meant to predict where the federal funds rate will be over the next coming years.
Low Fed rates are excellent for mortgage rates for in 2012. Although the Fed rates are not directly connected with mortgage rates, if banks can borrow money from the feds for less, then they can offer mortgages for less as well. The confirmation that fed rates will be low until mid-2014, mortgage rates should maintain lower levels for the foreseeable future.
If you are interested in refinancing or buying a home, this might have helped to buy you some time. Do not make the mistake of thinking rates are going to be low forever. Our advice would be to lock in your mortgage rate as soon as you are able. You have more to lose by not locking in your mortgage rate immediately than you do by waiting for even low rates. For more information on current mortgage rates call Riverbank Finance at 1-800-555-2098 or submit a request for information below.
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