Friday, September 25, 2009

Loan Mortgage Update 9-25-09 from Tony Guaraldi

The Fed held the short term Federal Funds rate steady at 0.25% this week which was no big surprise. They will likely keep the short term rates low for several more months. One key piece of news from the Fed meeting this week that everyone was waiting for is their policy on the purchase of mortgage backed securities from Fannie/Freddie. They said they will extend the program through the end of March 2010. However, they will not increase the amount of dollars they will spend on the program. Instead they will slow down the frequency and volume of their purchases to allow the program to last longer. They committed 1.25 Trillion dollars for this program earlier this year, and that dollar amount has not changed. It is a given that once the Fed ceases its purchases, that interest rates will climb significantly higher…most likely back above the 6% area. So instead of a hard transition with a large bump in rates, the Fed is attempting to allow rates to gradually rise.

The funny thing is the bond market had a good day on this news and continues to be in rally mode today even though the Fed did not commit any additional dollars to the program. Most likely the reason is because the headline with the word “extended” gets the people excited and the market reacted to it. In actuality it is likely that the gradual reduction in purchases will bring rates higher and produce more volatility! Rates will be on the rise soon and any delays by consumers will likely result in higher mortgage rates. I would expect that the average 30 year fixed mortgage rate will be in the low to mid 6% range by end of Q1 in 2010, and I expect a gradual rise to get there over the next six months.

Well as a result of this week’s Fed announcements and other negative economic reports rates are looking better than we have see in the past several months! Great time buy a home, great time to refinance, great time to get moving!!!

Tony Guaraldi
Mortgage Consultant
Intero Mortgage