Will Fed start buying mortgages again?

By JEFF LAZERSON / CONTRIBUTING COLUMNIST

8/28/2015

For some, it’s scarier than Mr. Toad’s Wild Ride at Disneyland. No, I’m not talking about the stock market gyrations. I’m talking about the recent slow and stingy rate improvement for fixed mortgages that usually shadow the 10-year U.S. treasury rates.

On Monday, the 10-year touched below 2 percent for the first time since April 28th. Yet, the 30-year fixed rate costs roughly .625 more in points than any identical fixed rate just four short months ago. On a $400,000 loan, that’s $2,500 more expensive. Ouch!

“This is a symptom that investors are getting nervous,” said Michael Fratantoni, chief economist at the Mortgage Bankers Association.

The Federal Reserve is holding 1.7 trillion dollars in mortgage backed securities or MBS’s (pools of mortgages packaged and sold in large bulks) purchased under the quantitative easing program.

Once these pooled mortgages are released in the market, then that they likely will reduce the value of all mortgage-backed securities.

To compete with the predictable, stable investment offered by the 10-year T-Bond, MBS’s have to offer a better return to investors. This is called a steepening yield curve.

When is the other shoe going to drop? When are we going to get hit with this mortgage dump?

Or, will the Federal Reserve start buying up mortgages in another round of quantitative easing since many of the world’s economies are slowing?

Typically, the Fed is not saying.

The Federal Reserve is not going to raise short-term rates next month, according to Lazersons’ crystal ball. If we end up having a bear market on Wall Street (that is more than a 20 percent decline) you can expect the Fed to start another round of quantitative easing.

The bottom line is rates aren’t moving more than a half-point one way or the other for the foreseeable future.

Orange County is happy and healthy in an economic sense. The Mortgage Bankers Association just released a research paper indicating that housing demand is going to grow big-time between now and 2024.

Buy. Sell. Improve your property. Or do none of the above, but don’t be afraid because rates are incredibly cheap.

If you have questions or comments, please contact Jeff Lazerson by clicking here.