Federal Mortgage Bond Purchase Program to end March 31
January 28th, 2010
Ephraim Schwartz, OMG
Partner, Mortgage Consultant CMPS
As expected, the Fed left the Fed Funds Rate (0 – .25%) & Prime Rate (3.25%) unchanged. Fed Chairman, Ben Bernanke, has said the Fed would like to keep rates at current levels through most of 2010. Looking ahead, if there is a culprit most likely to pressure the Fed to hike before then, it would almost certainly be rising inflation. Note: Remember, these are not tied to mortgage rates.
The most important topic the Real Estate/Mortgage industry was Fed’s Mortgage Bond purchase program which has artificial created demand in the bond space, and in turn keeping mortgage rates near all times lows, even as the stock market is up significantly since last March. Today, the Fed confirmed the MBS purchase program will end on March 31st. This means mortgage rates will creep higher in the months ahead. Bond prices, which drive mortgage rates, will once again be dictated by normal economic factors. Specifically, the ebb & flow of investment dollar between stocks & bonds, as well as potential inflation.
Stocks finished the day slightly higher, while bonds were slightly lower. When mortgage bonds drop, their rates/yields go higher.
