Today the Federal Reserve wrapped up its two-day March meeting and came out with some significant announcements relative to our economy. Specific to key interest rates and mortgage rates, they kept the Fed Fund rate unchanged (which was widely expected) but also announced an increase of their buyback program on mortgage back securities (MBS). They pledged an additional $750 billion to the program on top of the original $500 billion (of which they have burned through about half). This is great news…but what does it really mean?
Shortly after this announcement, I got in my car to drive to an appointment in San Francisco and turned on CNBC to listen to the post-Fed meeting chatter. In the following 25 minutes, the “talking heads†on CNBC used the words “4% mortgage†probably no less than 14 times. Heck, the way they were talking you would think rates were on the way to 4% with the next stop at zero! But don’t be looking for those media-created 4% mortgages any time soon…here’s why…
Yes, it is great news that the Fed is increasing their MBS purchase program. But they are generally out buying the 4%-5% coupons which does not necessarily drive up-front mortgage rates down hard and fast. What it DOES mean is that their buyback program will allow rates to stay low (in the 5% range) for an extended period of time. We are currently seeing conforming fixed rates around 4.875%-5% with no points…I would expect with this announcement they could go a bit lower but they are not going to 4% anytime soon.
Also keeping mortgage rates from falling significantly further is a jump in refinance applications this year as homeowners rightfully rush to take advantage of low mortgage rates. This rush has ALL lenders experiencing capacity issues. According to Arthur Frank, director of mortgage-backed securities research at Deutsche Bank Securities, “When originators are getting all the business they can handle, they don’t compete as aggressively on price.†I’m not saying that rates won’t fluctuate and could come down some…but this situation does, to some degree, create a floor for rates.
Oh…and what is all this MBS buyback buzz going to do for jumbo loans which many of us have in the Bay? Nothing. Remember, we are still experiencing a lack of secondary market for jumbo loans. That means lenders have to hold all jumbo loans they write in their own portfolios so they will price them appropriately for their own portfolio needs…not necessarily based on moves in the MBS market. We are being quite aggressive in jumbo loans right now but not because of MBS trading…because we want to write the jumbo loans.
Bottom line is this: the Fed announcement is good news but don’t listen to the media as they are misinformed. As long as you are being guided by and getting advice from an educated and well-informed mortgage banker, you are doing right by yourself. Rates are great right now! Don’t try and pick the bottom of the market – just find a loan program and a rate that makes sense for you.
Stacey Fleece is a Mortgage Loan Consultant with Countrywide Home Loans in Mill Valley in Marin County, California.
