Mortgage Interest Rates Fall Substantially
Posted by Benjamin Dona on Wednesday, November 26th, 2008 at 9:15pm.
Well it looks like the Feds have finally made a move that is actually going to have an immediate impact on the economy, especially the housing market.
The Federal Reserve announced yesterday that it would purchase Mortgage-Backed Securities (MBS) from Fannie Mae, Freddie Mac and Ginny Mae for up to $500 billion. The purchases will begin next week when the Fed will buy $100 Billion worth of the securities from primary dealers through a series of competitive auctions. Shortly thereafter, they plan to have selected asset managers begin conducting additional MBS purchases up to the $500 Billion total over the next few quarters.
These moves are substantial and should help begin freeing up the current mortgage gridlock and stubbornly high interest rates. Almost immediately after the announcement, long term mortgage interest rates fell by as much as one-half percent. As of this morning, a 30-year conforming fixed rate loan was available at 5.50% and the 15-year conforming fixed rate mortgage was at 5.625%. The FHA 30-year mortgage also fell below 6% and was available at 5.75%. Further declines are possible as the MBS purchases actually start occurring.
While the changes in rates won't make the housing market correct itself overnight, it should have a substantial impact for first-time home buyers, homeowners needing to refinance out of adjustable rate mortgages and the many folks who are trying to do loan modifications rather than face foreclosure. With a little luck, they may even fall far enough to help spur the housing market so it can begin to draw down on all the excess inventory and start stabilizing home prices. Only time will tell.
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