Lower Mortgage Rates to Hold Into ‘09by Tim Manni
Instead of reflecting back on one of the most trying years in financial history, let’s look to the future. The Federal Reserve confirmed yesterday that they will begin purchasing $500 billion worth of mortgage-backed securities (MBS) from Fannie Mae, Freddie Mac, and Ginnie Mae beginning in January. Their confirmed dedication to the mortgage market has instilled confidence that mortgage rates should remain at their very low levels (either a little above or below) for some months ahead.
The Fed’s announcement last month, combined with a preliminary purchase of GSE debt, has already helped to push mortgage rates down to under the 5% range. As the Fed initiates their purchases of MBS in 2009, low mortgage rates are due to have some staying power.
Yet, with the Fed’s program in place, something is still missing: the involvement of the private mortgage market. The recent surge in refi activity has rejuvenated that market to some degree — allowing lenders to clear off some old debt from their books — but it hasn’t been enough to re-establish its previous involvement. Once private lenders feel confident enough to re-enter the marketplace, the significant shift we have been waiting for could be upon us.
Americans have certainly already begun to take advantage of the lower rates. According to the Mortgage Bankers Association, mortgage applications last week matched the highest levels since July 2003:
Requests for home purchase applications climbed 1.4 percent to 320.9 on a seasonally adjusted basis…
The refinancing index had surged by nearly 63 percent in the prior week, also to the highest level since July 2003.