Since January, 2009 the Fed has been buying Mortgage Backed Securities – those bonds that determine mortgage rates. And we have seen a year with the lowest mortgage rates in literally decades as a result.
The goal of the Federal Reserve’s agency MBS program is to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally. Only fixed-rate agency MBSsecurities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for the program. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers.
Since the inception of the program in January 2009, the Fed has spent $1.122 trillion in the agency MBS market, or 89.8 percent of the allocated $1.25 trillion, which is scheduled to run out in March 2010.
So what happens in March, when the Fed stops buying? Last I heard, the Fed was buying 85% of all MBS. If that buyer leaves – how high will rates need to go to attract new buyers? That answer will keep you awake at night, if you make your living in the mortgage business.The question on everyone’s mind is: Will the Fed suddenly announce that they will put more money toward buying MBS, even after March?
I am inclined to think they will, since not doing so would send the housing market into a tailspin again if mortgage rates rose dramatically.
But, the certain thing is if you are in the home buying market, get them off the mark and lock in a rate soon. Anything else is a gamble.
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