Fed’s QE2 program off to a rocky startby Tim Manni
The second round of the Federal Reserve’s Quantitative Easing (QE2) program kicked into gear last week. So far, it’s not producing the desired effects (at least in terms of influencing interest rates downward). Before we get too ahead of ourselves, allow me to reiterate that the program has just gotten underway. Let’s allow the program to get going before we draw any concrete conclusions.
That said, what we do know for sure is that the effects of this program are largely unknown. For the most part, QE2 is an unprecedented undertaking without knowable outcomes.
Mortgage interest rates eased by a whisker [last] week. HSH.com’s overall mortgage tracker — our weekly Fixed-Rate Mortgage Indicator (FRMI) — revealed that the average rate for 30-year fixed-rate mortgages declined by one basis point (.01%), ending HSH.com’s national survey at 4.61%. For those buying homes or hoping to refinance with only a small equity position, FHA-backed loans are available at an average rate of 4.26%, and the overall average rate for hybrid 5/1 ARMs was 3.52% for the period. HSH.com’s public mortgage interest rate data series include rates for conforming, jumbo, and most recently the GSE’s “high-limit” conforming products and so covers much of the mortgage-borrowing public.
While mortgage rates at the retail level generally remained flat, there were considerable increases seen upstream in the process this week. Common “required net yields” for 30-year FRMs from Fannie and Freddie — essentially, the wholesale price of mortgage money — rose by 10-20 basis points [last] week, but so far, those increases haven’t been passed along. It would appear that lenders are absorbing those increases in order to keep profitable refinancing business coming in the door. The influential yield on the 10-year Treasury bounced as much as 20 basis points higher when comparing last Friday’s close (11/5/10) to this one (11/12/10). The Fed’s QE program does seem to be getting off to a rocky start, at least as far as hoping to influence interest rates downward.
We think that lenders will let a little increase in rates slip in[this] week, enough to bump the averages a couple of basis points or so. As it stands, our “record record” low was the week ending October 22, and we’ve been a few basis points above it since then. If economic prospects are improving, we may move away from this bottom a bit more.
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