Speculation: Fed is key ingredient for refinancing underwater borrowers
First, two questions to consider
Question1: What has been one of the biggest stumbling blocks of the HARP program?
“Mortgage Market Armageddon, or Non-Event?”
By Thursday we will know.
In just a few days we’ll find out if the end of the Fed’s MBS-purchase program, that has kept mortgage rates near historical lows, will bring about a significant rise in rates. Due to several factors, the absence of the Fed won’t be as bad as we originally predicted (emphasis added):
As we’ve detailed in our latest Two-Month Forecast and over the past couple of weeks in our weekly Market Trends [Newsletter], we don’t expect there to be a huge change in mortgage interest rates. However, at least some firming should be expected as we move away from the safe, steady arms of the Fed and into the wilds of (at least partially) privately-driven markets, where demand for yield and concerns about fiscal policy and inflation inform investment decisions.
Mortgage Rates Stabilize, No Longer Rising
Mortgage rates stabilized last week, ending their multiple-week run of increases, according to the latest issue of HSH’s Market Trends Newsletter (emphasis added):
The turn of the calendar put an end to a weeks-long rise in mortgage rates. As the holiday period falls behind us and we return to more normal market activity, it’s not unusual to see a change in direction for mortgage rates.
Much of the Same from the FOMC
The Federal Open Market Committee (FOMC) ended their two-day meeting today the same way they have been for months now: keeping the target for the Fed funds rates between 0 and 0.25%, and claiming that the economy continues to recover, albeit very slowly:
Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.
What Will Rates Look Like in 2010?
In case you haven’t read it already, our very own VP Keith Gumbinger spoke with SmartMoney.com earlier this week, and gave our take on where we think mortgage rates are headed next year.
Lisa Scherzer of SmartMoney.com begs the question, “What will happen to mortgage rates when the Fed stops manipulating the market?”
However, we can’t help but wonder if the Fed will even decide to end their mortgage program as scheduled. They’ve already extended it once, concerned that the private market wasn’t ready to survive on its own, and if market conditions haven’t stabilized by the end of the first quarter 2010 (the scheduled expiration date), the Fed could decide to keep this program in place even longer. Here’s what Keith had to say (emphasis added): Read the rest of this entry »
Update1 What Would Mortgage Rates Be Like Without the Fed?
The Fed has some important decisions to make before year’s end — like whether or not to purchase more than $1.25 trillion in mortgage-backed securities (MBS).
Today, as the Federal Open Market Committee (FOMC) begins day one of their two-day meeting, analysts are expecting that, when the FOMC meeting concludes tomorrow, the Central Bank will keep the target for the Fed funds rate between 0% and 0.25%, and that the Fed will likely phase out their MBS program by December as previously planned.
But what will happen to mortgage rates when this program comes to a close? Since the MBS purchase program began, the Fed has bought some 80% of the mortgages sold in this country, the Wall Street Journal estimates. How badly will affordability be affected if there is no longer a strategy in place to keep rates subdued? Read the rest of this entry »
Reader: What Should I Look Out For?
A visitor to HSH.com submitted a question regarding which economic factors contribute to lower mortgage rates.
Reader: Considering the state of the current economy, which indicators should I be looking out for that would cause 30 and 15 year mortgage rates to drop to 4.5%?
There are a few reliable indicators of mortgage rates at the moment, yet the normal relationships between those indicators and mortgage rates have been interrupted by repeated intrusions of the government and others reasons
Fed Announces Major Steps Following FOMC Meeting
Beginning in December we wrote that the conclusion of the Federal Open Market Committee (FOMC) meetings were growing less about changes to the federal funds rates than they were about the announcement that followed the meeting. Today’s conclusion was no different. While the Fed decided to once again leave the target range for the fed funds rates at 0 to .25%, the big news was the Fed’s decision to expand their balance sheet — and expand it extensively they will.
The brief press release issued immediately after the conclusion of the two-day meeting introduced the Fed’s expanded plan to purchase up to $1.25 trillion worth of Fannie and Freddie mortgage backed securities (MBS), $300 billion in longer-term Treasury securities, as well as a plan to increase their purchase of F&F debt by up to $100 billion.
Why Government Interaction is Ruining the Marketplace
In a deal that was set to finalize at the turn of the year, Bank of America’s acquisition of Merrill Lynch has been delayed over BofA’s claims that they’ll need more money in order to complete the government-encouraged deal:
The commitment of funds is further evidence of the banking system’s delicate condition and its hunger for more capital, despite billions of dollars already invested in financial institutions by the government.
Lower Mortgage Rates to Hold Into ‘09
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.
