Which Way Will Mortgage Rates Go?
Mortgage interest rates continue to hover around the 5% mark. Conforming, FHA and VA mortgage rates all continue to be reported in the low 5 percent range for home loans and mortgage refinancing. There have been positive signs in the last quarter regarding job losses, the financial markets and even the housing sector, but economic recovery is likely still a few months away, Freddie Mac’s chief economist said today. In an article titled, “Are We There Yet?” the outlook from Freddie Mac’s Frank E. Nothaft for 2010 is mostly positive, although there are cautionary flags ahead – particularly with higher mortgage interest rates and the expiration of homebuyer tax credits.
Most economists will be looking at the aftermath from the government’s winding down of its purchases of mortgage loan backed securities from Freddie Mac and Fannie Mae. By discontinuing its purchase program in April, the central bank is hoping that private buyers of mortgage-backed securities will return, and rates won’t rise much after that. Investors in mortgaged-backed securities have stayed mostly on the sidelines. “U.S. Department of the Treasury MBS purchases were completed by year-end, and Federal Reserve purchases of MBS and Freddie Mac and Fannie Mae debt are scheduled to terminate by the end of the first quarter 2010 – both potentially pose the risk of a rise in mortgage rates relative to benchmark yields,” Nothaft said.
Another potential strain on interest rates is the expiration of tax credits for home buyers. Under the federal program, home purchase contracts must be signed by April 30 to qualify for the tax credits. “The tax credits have likely caused some families to purchase a home earlier than they might have otherwise, thus moving sales forward in time and helping support the housing market. High affordability and improved buyer sentiment further bolster sales,” Nothaft wrote.
So when will we get there? “While there may be some bumps along the way, the transition into economic recovery appears to be underway as we head into 2010: real economic growth in the 3 to 3.5 percent range, a cessation of job losses in the first quarter, rising home sales, and a strengthening of housing starts in some markets,” Nothaft wrote “We should be ‘there’ in the next few months, if not already.” Read the original article online.
Federal Reserve Hints that Mortgage Rates Will Remain Low
The Federal Reserve is expected to leave mortgage interest rates at a record low this week, aiming to entice homeowners and businesses to borrow and spend and bolster the economic and housing recovery. The big question is whether Chairman Ben Bernanke and his colleagues will give hints about when they will reverse course and start boosting rates. A decision to raise interest rates is still months away. But plans for reeling in the unprecedented amount of money the Fed has plowed into the economy is likely to dominate its private discussions Tuesday and Wednesday. The Fed is expected to announce its policy decisions on Wednesday afternoon.
The current mortgage rates remain at record lows. Borrowers can find mortgage loans as low as 4.375% for 15-year fixed terms. Home loan applicants can find 30-year fixed mortgage rates as low as 4.625%, so the era of low mortgage rates continues. The central bank faces a high-stakes challenge: If it removes the stimulus too soon, it could short-circuit the recovery. But if it moves too late, it could unleash inflation or new speculative asset bubbles. Each scenario could feed a fresh economic crisis. Bernanke, who’s seeking a second term as Fed chief, has made clear his No. 1 task is sustaining the fragile recovery. Last week, he and other Fed officials signaled they are in no rush to start raising rates. At the same time, Bernanke has sought to assure skeptical lawmakers and investors that when the time is right, he’s prepared to sop up all the money.
Some encouraging signs for the economy have emerged lately. The nation’s unemployment rate dipped to 10% in November, from 10.2% in October. And layoffs have slowed. Employers cut just 11,000 jobs last month, the best showing since the recession started two years ago. Still, the Federal Reserve predicts unemployment will remain high because companies won’t ramp up hiring until they feel confident the recovery will last. Mortgage refinancing application volumes remain high and most lenders are reporting a 6 to 8 weeks turn-time for closing loans.
Consumers did show a greater appetite to spend in October and November. But high unemployment and hard-to-get credit are likely to restrain shoppers during the rest of the holiday season and into next year. “The economy isn’t on solid footing yet,” said Chris Rupkey, an economist at the Bank of Tokyo-Mitsubishi. “So it’s best for the Fed to keep with the script of low interest rates.” The economy finally returned to growth in the third quarter, after four straight losing quarters. And all signs suggest it picked up speed in the current final quarter of this year. But analysts worry that the economy could weaken next year as government supports fade.
Last week, Bernanke warned that the economy confronts “formidable headwinds.” They include a weak job market, cautious consumers and tight credit. Against that backdrop, the Fed is all but certain to keep the target range for its bank lending rate at zero to 0.25 %, where it’s stood since last December. The Fed also is likely to retain a pledge first made in March to hold rates at such levels for “an extended period.” The central bank also isn’t expected to make any major changes to a program, set to expire in March, to help further drive down mortgage rates. In response, commercial banks’ prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 %. That’s its lowest point in decades.
Ultra-low mortgage interest rates are good for borrowers who can get a loan and are willing to take on more debt. But those same low rates hurt savers. They’re especially hard on people living on fixed incomes who are earning measly returns on savings accounts and certificates of deposit. Tight credit is clobbering small businesses, normally an engine of job creation during economic recoveries. That’s crimping their ability to hire and expand. Many small businesses rely on smaller banks for credit. But troubled commercial real estate loans are concentrated at those banks. That’s hobbled the flow of credit. At a White House meeting Monday, President Barack Obama urged top bankers to increase lending to small businesses. Afterward, some banks pledged to do so. Article was written by By JEANNINE AVERSA.
Will Mortgage Rates Remain Low in 2010?
The Fed’s Federal Open Market Committee announced that they were leaving mortgage rates unchanged. However, what wasn’t reported by main stream news organizations is the real story. According to the statement released by the Federal Reserve, in an effort to “provide support to mortgage loan and housing markets” they will “purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt.” Additionally, “they expect to gradually slow the pace of these purchases in order to promote a smooth transition. So just what does this mean for mortgage interest rates? “In short - They are going to go up. It’s simple supply and demand,” says Scott Messina, publisher of Mortgage Market Live. “Just how fast remains to be seen, it really all depends on how fast the Fed turns off the spigot.”
2009 began with low mortgage rates in an effort to stimulate housing and the economy at large, the Federal Reserve began buying bad credit mortgage debt. Without this “help” from the Fed, mortgage rates would have been forced higher to attract more investors. Instead the Fed has been quietly buying this oversupply to keep interest rates artificially low. “The problem of course, is once this helping hand is pulled back, rates have nowhere to go but up.” added Messina. “The saving grace is that mortgage rates will likely be very volatile for the next several months. Originators should always remember that volatility can equal opportunity.” “If you’ve watched mortgage rates over the last several weeks, there has been at least one day each week that was preferable for rates. Loan officers that knew which day to lock in their customers loans have saved their customers, on average over a quarter of a percent in rate.”
Why Mortgage Rates Are Rising
The spread between the 2 year and 10 year treasury yields continues to widen. Federal Reserve policies largely control the direction of shorter-dated notes, while the overall bond market and investors largely determine the direction of longer-dated bonds.
The difference between short and long-term bonds is called the ‘yield spread’ and it is a measure of varied expectations. This yield spread chart clearly shows that what the Fed policies are doing is largely different than the overall expectations from the bond market. This is one reason why interest rates on certain types of home loans such as refinance mortgages, purchase and equity loans have risen lately even as the Fed keeps its target interest rate at 0-0.25%. The bond market is seeing the future differently than the Federal Reserve.
Mortgage Interest Rates May Reduced by the Fed Again
The mortgage industry has been awaiting some good news and Michigan homeowners have been waiting out the present state-wide housing slump that could receive a big boost, particularly for those looking to refinance. If you thought mortgage rates couldn’t fall any further, think again. Some economists expect the Federal Reserve to reduce current mortgage interest rates as low as 3.85 %. That would be truly amazing. I don’t know if mortgage rates have ever been that low,” said Amanda Crews, the housing director at Metro Housing in Flint.
Fed Cuts Rates to Target Range of 0%-0.25%
Watch Roundtable Reaction to the Federal Reserve and Potential Mortgage Rate Cuts.
Currently, conventional home mortgages are being published below 5%. Just a few months back, they were in the low 6% range. A cut below four % could save home owners a ton of cash. “One thousand dollars a year for every point for a $100,000 loan — two points. That would save a borrower $200 a month after refinancing a $100,000 mortgage loan.”
The average rate on 30-year fixed mortgage loans rose last week to 5.12 %, from a record low of 4.96 % a week earlier, according McLean, Virginia-based Freddie Mac. After the Federal Reserve announced plans to buy $500 billion of bad credit home loan security bonds, rates fell from 6.46 % in October, about tripling the pace of home loan applications between the four weeks ended Jan. 16 and Nov. 21, according to the Mortgage Bankers Association. If mortgage lenders introduced even lower rates, they would not be able to handle the resulting surge in applications, Heiden said. “As mortgage interest rates improve, volume increases,” she said.
New York Fed Begins Purchasing Mortgage-Backed Securities
The Federal Reserve Bank of New York today began purchasing fixed-rate mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. Selected private investment managers are acting as agents of the New York Fed in these purchases. Summary data detailing these operations will be available on the New York Fed’s website beginning Thursday, January 8, 2009, and will be updated on a weekly basis each Thursday.
Get updated home loan guidelines and daily mortgage interest rates online. Many insiders believe that the Fed will continue to keep interest rates low for home purchase and refinancing through 2010, or when the housing markets recover.
This program, first announced on November 25, 2008, is intended to support the mortgage and housing markets and foster improved conditions in financial markets more generally. Read the original financial article>
Five Smart Moves to Get the Best Mortgage Rates
According to a recent article from Interest.com, if you’re in the market for a home, there are five smart moves you can make to help you qualify for the cheapest possible mortgage. The tantalizing interest rates mortgage lenders put in their ads are for borrowers with the best credit scores, substantial down payments and the biggest gap between how much they earn and how much they owe each month.
Many home buyers will pay a lot more, but you don’t have to be one of them. With lenders demanding better credit scores, bigger down payments and lower debt-to-income ratios before they offer a mortgage, you have to improve your numbers. Plan ahead so that when you go for that home loan, you’re showing your best financial face. Every tenth-of-a-point is worth fighting for. Potentially, getting a lower mortgage rate could save you thousands of dollars a year. Read the complete article, 5 Smart Moves to Get the Best Rate.
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