Central Bank Buying Bonds
By: Ed Ferrara
The Federal Reserve has implied they will lower interest rates through buying home loan bonds (long term treasury bonds) over the next few weeks.That should spell good news and lower rates for homeowner’s in the market for a purchase or refinance.
For the third day in a row 10 year treasury yields tied to Fannie Mae and Freddie Mac mortgage loans fell. Information from reliable sources shows 30 year fix mortgages rates have declined over 0.20% resulting in a 4.69% average rate. This is the lowest rate in a few weeks for fixed mortgage loans. Since latter part of May 2009 rates are still slightly higher.
United States Mortgage borrowing rates are being determined by yields from agency mortgage bonds. This is due to the 2007 non agency market collapsing and the banks shutting down. This market is made of almost exclusively government backed mortgage securities. The U.S. central bank has promised to acquire up to $300 billion of the securities and relieve Fannie Mae, Freddie Mac and other home loan banks of almost $200 billion of debt.
For homeowner’s worried they have missed the boat not pulling the trigger on sub 5% refinance or purchase loan this guarantee by the central bank is great news. The fed is committed to driving the rates back down and stimulating the housing market. If rates were to continue to rise to levels not seen since early 2008 that could spell disaster for the struggling housing market. Already in California there’s almost a year supply of homes back logged on the market. Besides high interest rates homeowners are having a tough time with the super strict appraisal rules when obtaining a loan.