When the Feds Stop Buying Mortgage Backed Securities
Why should you care about this? Well, the fact is that the government has been buying these loans that were all bundled into investments that turned out to be poor risks. This influx of $1.25 trillion in government $$ has propped up the housing market, kept banks solvent and allowed market interest rates to remain low, between 5% and 5.25% for much of 2009. By about the second quarter of 2010, this activity is scheduled to discontinue.
So we do expect that the government will indeed close the program down in an attempt to return to more normal market conditions. This is what they are telling us. This will leave private investors to pick up the slack, which they may or may not do at a rate necessary to keep interest rates low.
Brian O’Connell of BankingMyWay.com says,
“If the economy doesn’t cooperate, and sends private investors into the mortgage marketplace to plug the gap (a good bet right now), then look for interest rates to rise next March. [2010]
The Fed may not do deadlines, but it’s not above firing a warning shot to the American consumer. If you want to buy a home, do it in the next three or four months. After all, the difference in monthly mortgage payments of 5% or 6% can be measured in tens of thousands of dollars over the life of the loan.”
Brian’s right. Every 1% of interest rate increases your costs over the life of the loan, and it also reduces the price of the house you can qualify to buy. For instance if you qualify to buy a $400,000 home now at 5%, you will qualify for $358,000 at 6%.
Maximum buying power comes with low rates. We have the triple benefit of low interest rates and low prices right now, (some REO’s are ridiculously low) and government tax credits. It really is an incredibly inexpensive moment to buy.
Lynette Hensley
Associate Broker