Mortgage Rates Eased Last Weekby Tim Manni
Mortgage rates have shown some profound stability lately in the face of turbulent market conditions. According to the latest issue of HSH’s Market Trends Newsletter, “In fact, the last four weeks of averages for 30-year conforming rates all were within just a few basis points of each other, a remarkable bit of stability in a market which still faces many challenges.”
The overall average for 30-year fixed-rate mortgages tracked by HSH.com’s FRMI declined by six basis points (.06%), ending a snowy northeast week at 5.36%. The FRMI includes conforming, jumbo and the GSE’s “high-limit” conforming products in its calculation. The FRMI’s Hybrid 5/1 ARM counterpart, shed just three basis points (.03%), during the latest survey cycle, landing at 4.57% at the close of Friday’s [02/12/10] workweek.
Worried that mortgage rates will rise in a few weeks when the Fed exits the market? While our 2010 Outlook shares our expectations of how rates will behave come March 31, Washington made a move this week that will certainly help to ease the Fed’s transition – one that could also serve to make any move in mortgage rates (after 03/31/10) less dramatic (emphasis added):
Of late, we continue to field questions about the coming end of the Fed’s MBS purchase program. As we wrote in the January 15 Market Trends, we don’t think the end of the program necessarily means the end of low mortgage rates. As one condition, we mentioned that Fannie and Freddie might start to balloon their holdings of loans now that their portfolio limits had been lifted, and the first of what will probably be more such announcements came [last] week. The GSEs revealed plans to start buying back poorly- or non-performing loans from lenders and investors, as doing so will ultimately be less costly than making good on the loan performance guarantees the GSEs provide to these investors.
While technical in nature, this process will flush perhaps $200 billion dollars of cash back into the hands of Mortgage Backed Securities (MBS) investors; presumably, these market participants will begin the process of replenishing depleted holdings, and that appetite should serve to at least partially offset the Fed’s plan of diminishing involvement. At the same time, and free of size limits, Fannie and Freddie are under no pressure to immediately turn stocks of newly originated performing loans from lenders into new MBS, and so can mete or tune the supply of new MBS product to more closely match demand, which would also serve to keep the lid on any increases in rates. In this way, they would act in the same “sponge” capacity as the Federal Reserve, absorbing excess supply before it can distort prices in the market.
All this is to say that it appears that the Fed program is unlikely to be extended since a mechanism now seems to exist to perform the same essential function.
Click here to continue reading “Home Mortgage Rates Ease Slightly.” HSH’s free Market Trends Newsletter, an in-depth analysis of various financial markets from the week prior, is published every Monday. Email subscribers receive it in their inbox Friday night, so sign up today! Also, be sure to check in with our Market Trends blog for all news relating to any weekly shift in mortgage rates.