Federal Reserve’s Action Causing Mortgage Rates To Drop!

An article titled: “Survey: 4 Out of 5 Homeowners Shy About Refinancing” was written recently and in this article the author referred to a poll that was done in which 4 out of 5 home-owning Americans indicated they were unlikely to buy a new or refinance their current home. We all know these polls can sometimes be misleading – who was surveyed? what is the person or persons administering the survey hoping to prove, etc? But assuming 4 out of 5 is more than reality, even 2 out of 5 would be a concern, especially for folks who are foregoing a beneficial refinance. The opportunity for homeowners to improve their financial position as far as their mortgage is concerned is tremendous right now – assuming a refinance makes sense for one’s current situation.

And today, due to actions taken – or to be taken – by the Federal Reserve over the next several months/years (they vowed to maintain the program as long as they deem necessary to make home buying more affordable), rates are likely to drop even lower than the all time lows we’re experiencing now. The Fed will spend $40 billion per month to buy mortgage backed securities (or mortgage bonds), which should cause long term mortgage rates (15 and 30 year terms) to drop further.

The flip side to this story is that the market for the US Treasury bonds worsened as a result of the Fed announcement, primarily due to the related inflationary fears. In order to pay for these purchases, which, by the way, is in addition to the $45 billion in long term bonds the Fed is buying each month, it will have to print more money and increase the size of its already gargantuan $2.8 trillion balance sheet (related article).

So, while the purchasing of mortgage bonds by the Fed is designed to keep long term rates low, it will likely be fighting against some sort of head wind due to the deterioration of the US Treasuries. That said, and while predicting the future is not in our skill set, we do think a net reduction in mortgage rates over the next days, weeks and possibly even months is a distinct possibility. This is true in spite of the fact that new Guarantee Fees from Fannie Mae and Freddie Mac that take affect on 1/1/2013 will put upward pressure on mortgage rates (see our blog post on the G Fees).

Please stay tuned as we will be keeping you informed; and if you have any questions, don’t hesitate to give us a call – (505) 830-9685.

About Two Bald Mortgage Guys

Ken Blanchard, one of the country’s premier business leadership authors, says in his latest book, “To keep customers today, you can’t be content to merely satisfy them; you have to give them legendary service and create ‘raving fans’ – customers who are so excited about the way you treat them that they tell stories about you.” In everything we do, this is what we envision. We see people such as yourself being so enthused with the process and service we provide that you will become a raving fan for us, telling stories to people of what you just experienced.


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