The Federal Reserve’s announcement that it would buy $750 billion more in agency (Fannie Mae and Freddie Mac ) mortgage backed securities to "provide greater support to the mortgage lending and housing market,” brings the total amount it’s sinking into agency MBS to $1.25 trillion.
So what does that mean down in the trenches of the housing market?
For one, “there will be a honeymoon effect on mortgage rates,” says Greg McBride of Bankrate.com, like we saw the first time the Fed announced it would buy agency MBS But the first time, at the end of last year, rates on the 30-year fixed dropped about 50-75 basis points, but the lower rates didn't last because the market wasn't sure what the fed's longer term commitment might be. Also, the lenders weren't passing on the savings to the borrowers.
Now you have a much bigger and more confident commitment through all of 2009. That will “keep a lid on martgage rates through the end of the year, in contrast to the ‘here today, gone tomorrow’ moves in mortgage rates” that we’ve seen, adds McBride.
But Guy Cecala of Inside Mortgage Finance says, “it won’t necessarily address the fact that lenders may still be reluctant to pass on any MBS pricing windfall to consumers.” That’s because they could instead “boost profits by pocketing any pricing improvement.”
Also, refis are already surging.
Fannie Mae reported today that the company’s refinancing volume jumped to more than $41 billion in February, “nearly three times the refinancing volume the company experienced during the month of January and the largest refinancing volume in nearly a year.” So what’s the incentive for them to lower rates even further?
Who's Saying What About The Fed?
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