November 15th, 2010

Fed’s QE2 program off to a rocky start



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.

For example, what will the effect be on mortgage rates? Well, as far as last week goes, mortgage rates eased by “a whisker”:

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.

CLICK HERE to continue reading the latest issue of our Market Trends Newsletter, “Mortgage rates Steady, for Now.”

HSH.com’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.

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2 Responses to “Fed’s QE2 program off to a rocky start”

  1. Tweets that mention Fed’s QE2 program off to a rocky start | HSH Financial News Blog -- Topsy.com Says: November 15th, 2010 at 2:12 pm

    [...] This post was mentioned on Twitter by HSH Associates, HSH Associates. HSH Associates said: Fed’s QE2 program off to a rocky start http://bit.ly/aqHRec At least in terms of influencing interest rates downward… [...]

  2. A1MortgageInfo (Wolf Leonard) Says: November 16th, 2010 at 10:46 am

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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