Mortgage Rates after the Bernanke Announcement

by The KCM Crew on September, 2013 in Interest Rates

Last week, Bernard Bernanke startled many by announcing that the Fed will not wind down their bond buying program right now. The program is part of an overall stimulus package geared at bringing back the national economy. The Fed’s purchase of these bonds over the last few years has driven mortgage rates to historic lows. The assumption that there would be a reduction in bond purchases has caused 30 year mortgage rates to spike upward over the last few months.

Surprisingly, Bernanke revealed the Fed will continue bond purchasers at the current pace. What happened and what does it mean to mortgage interest rates?

What would have happened if they reduced bond purchases?

 

According to Bankrate.com:

“The Fed could have caused rates to shoot up this week if it had announced the tapering of its bond-purchasing program.”

Why did the Fed decide not to start winding down bond purchases?

 

Moody’s Analytics reported that there were three reasons:

1. Subpar economic data
2. Tighter financial conditions
3. Uncertainty surrounding fiscal policy

What does this mean to a buyer applying for a mortgage?

 

Those at Bankrate.com explain:

“For now, borrowers have dodged another spike in rates. The Fed's announcement might even cause rates to drop in coming days, says Paul Edelstein, director of financial economics at IHS Global Insight.
‘Mortgage rates should fall back -- not massively, but to some extent,’ he says.
That doesn't mean homebuyers and homeowners should wait for lower rates, mortgage professionals say.
Eventually, once the Fed lets the mortgage market and the economy start walking on their own, rates will probably head back to the 5 percent or 6 percent range, says Scott Schang, manager for Broadview Mortgage Katella in Orange, Calif."

When will the Fed begin winding down bond purchases? 

 

According to an article in the Wall Street Journal:

“Federal Reserve policy makers decided this week that the economy isn't in the right place for them to start winding down their bond-buying program. By the time they meet in December, it might be.
The decision to not start winding down the bond-buying program now was close… The economy only needs to get a little bit better over the next few months for the central bank to get its nerve back. That should be an easy bar for the economy to clear.”

Bernanke himself has not ruled out that the Fed could still scale back the stimulus this year. He stated:

"If the data confirms our basic outlook, then we could move later this year.”

Bottom Line

 

Ed Conarchy, a mortgage planner at Cherry Creek Mortgage in Gurnee, IL had a great quote in the Bankrate article:

"Remember that rates go up like a rocket and fall like a feather."

Still, Bankrate.com itself probably put it best: Grab the gift before it's gone!

Noemi Cardoso
William Raveis Real Estate
Serving MA & RI
www.DistinctiveHomes-NE.com

Are Lending Standards Loosening?

by The KCM Crew on February 27, 2013

Celia Chen, an economist for Moody’s Analytics, recently reported on her projections regarding mortgage standards throughout 2013.

“The housing recovery began in earnest in 2012, despite constraints placed by a still-tight mortgage lending environment. This year promises improvements as the drivers of tough credit standards reverse. First, consumer credit quality is improving, which will help increase the number of creditworthy borrowers. Second, policymakers, regulators and courts are ironing out the legal and regulatory issues that cast a pall of uncertainty over the mortgage industry. Combined with mortgage interest rates that will remain low, mortgage credit will be more accessible to households this year, although still not back to normal. Nonetheless, a slight opening of the credit spigot is a positive for the housing outlook.”

She warns that normal credit standards will not return for some time as new QR and QRM rules are determined.

“On the supply side, easy credit is still a long way off as lenders loosen incrementally from very high standards: The share of loans originated for borrowers with the highest credit score has remained large, averaging 82% in the last two years, compared with 50% in 2005 and 2006. New rules issued by the Consumer Finance Protection Bureau in January keep mortgage standards high and credit tight, as lenders will be required to fully document every borrower’s income, employment and assets regardless of credit history. Other rules will effectively ban loans with interest only or negatively amortizing payments.”

However, she sees things improving as we move through the year because there is less risk for the banks now that house prices are again appreciating.

“Finally, rising house prices give lenders more breathing room to extend credit. Over the last 18 months, large lenders have loosened or left standards stable on prime loans that dominate mortgage originations, reports the Federal Reserve’s survey of senior lending officers.”

What Impact Will This Have on the Housing Market?

“Although mortgage supply will remain constrained, improved consumer credit quality combined with steady growth in jobs, low mortgage interest rates, and modestly rising house prices means that more households will be able to qualify for a mortgage. Greater credit availability will in turn help drive stronger home sales and stronger price appreciation and help keep the housing market and economy on an upward path.”

If you are thinking of buying a home in Westport or surrounding areas please visit www.DistinctiveHomes-NE.com for a free list of homes for sale in Westport and Bristol County MA and RI.

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Noemi Cardoso
Local Office. Local Agents. Local Knowledge.
William Raveis Real Estate
911 Main Rd - Westport MA 02790
Cell: 508-558-1945
www.DistinctiveHomes-NE.com
noemi@DistinctiveHomes-NE.com