These are certainly very dynamic and fast moving times in the mortgage market these days! Just when you think things are settling down a bit, another curve ball comes our way. The most recent one came to us courtesy of Secretary Treasurer Hank Paulson yet again.
As you know, the Treasury has already announced a plan to buy mortgage backed securities (MBS) issued by Fannie Mae and Freddie Mac. Yesterday, they came out and said that they would ideally like to step up those purchases in order to drive mortgage rates down to 4.5% for conforming loans. I would love to see that happen as much as the next person…but there is NO guarantee that rates will actually get there. A couple of points to consider:
- The Treasury DOES NOT set home mortgage rates…period! Mortgage rates are based on where mortgage bonds trade in the open market. There are many economic and other external factors that contribute to the trading of these bonds. While their aggressive purchase of the securities could help drive rates down, it is not the only factor.
- It is very difficult, if not nearly impossible, for any one entity to set a target interest rate on home mortgages because of the reasons stated above.
- The MBS market is obviously skeptical of the ability for the Treasury to impact rates down to 4.5% as the market reaction to the announcement was quite muted…and, in fact, rates have ticked UP slightly today.
We certainly are not in a typical trading environment for mortgage backed securities as we are still experiencing significant volatility which is causing rates to move rapidly. If you are buying a home or refinancing and have locked in a rate that you are happy with now, you should grab it while you can. There is no guarantee that rates will go lower and in waiting for an incremental drop that may never come, rates could move up fast and furiously in this environment as well.
Most mortgages now come with no prepayment penalty so if down the road rates do come down further, you can always refinance again and can even do it with no closing costs…just ask your mortgage professional about that option.
Stacey Fleece is a Mortgage Loan Consultant with Countrywide Home Loans in Mill Valley in Marin County, California.