Feb. 9 (FreeRateUpdate.com) WASHINGTON D.C. - The Fed is preparing to layout an exit strategy to the public. Investors have been acting on speculation only lately, with no concrete plan in place, as to what the Fed plans to do as far as raising interest rates and tightening credit. Not only that, but their exit from the MBS market is important as
well, especially to the housing industry which is efffected by mortgage rates. Though they’ll begin preparing to lay out their plan, don’t expect an interest rate hike for several months.
How will the Fed exit strategy, particularly the raising of interest rates effect mortgage rates? Contrary to popular belief the Fed rate does not directly effect conforming fixed mortgage rates for Fannie and Freddie backed products used to buy homes today. It’s your credit lines, and adjustable rate mortgages that are in the adjustable period that are most effected by the Fed’s changing of interest rates. Matter a fact, historically when the Fed lowers interest rates, mortgage rates go up immediately and vice versa. Wierd I know. What’s likely to have the biggest effect on mortgage rates, tied to the Fed’s exit strategy, is the end of their purchasing of mortgage-backed securities in March. Easing concerns that mortgage rates could shoot through the roof after they stop buying MBS was a recent statement saying if rates were to go too high, the Fed simply could consider buying MBS again.
Here’s a video about the Fed preparing to detail an exit strategy, click to play.