Coming to a close –

Fed’s Involvement in Mortgage Back Securities

The Fed’s involvement  in purchasing Mortgage Back Securities comes to end TODAY.  There have been differing opinions of the overall effect on mortgage interest rates as the go to source has been the Federal Government who isn’t concerned with a high IRR.  However, the replacement  funding source, investors, are concerned with a high IRR and on the heels of the recent MBS market it may prove costly to lure investors back .  So at first blush you would anticipate rates to increase to attract new investors.  We have seen an increase in mortgage interest rates over the past several days indicating lenders hedging on their ability to sell mortgages in the open market.

Now in comes Fannie and Freddie, you remember these guys, the organizations that folded in wake of the crumbling mortgage industry.  (Just as a reminder I think we as tax payers own them)  They say that they will be buying back $200 Billion of bonds backing delinquent mortgages from investors.    Why You Ask? The thought process is that once investors unload these bad eggs they will take their cash and re-invest in new agency-backed securities( MBS).  If this happens then rates will remain low or at least hold at current levels. “I played with a match once and got burnt, I was very careful the next time I touched one.”

So with all the chips on the table where are mortgage interest rates going?  The answers is the same as it is every day.  Mortgage interest rates fluctuate daily up…and down.  In my opinion, the trend is moving upward as demand for new mortgages is down and will remain soft for the balance of the year.  The increase in rates will move those thinking about refinancing to the sidelines as it just wouldn’t make good financial sense.  And at the end of the day, the percentage of mortgage applications converting  to closed loans is still at all time lows as lenders are in their bunkers waiting for this storm to blow over.

So if you are considering a new purchase or  refinance give your mortgage broker a call to look at the options that are available for you.  Remember that in today’s market there are several factors that affect your mortgage interest rate, be wary of those that give you a quote off the cuff.  The likelihood of your closing with that rate would be questionable.