Your Certified Mortgage Planner — Michael Eiden, Mortgage Blogger

4.5 FNMA Mortgage Coupon 8-2008 to 2-2010

Remember all the writing I did in the past year about how the Federal Government has been artificially propping up the mortgage markets and keeping interest rates low?

It is all coming to an end … in 37 days!

*HINT* If you click the graph at left, it will open a new window so you can examine it closer. As you can clearly see, the moment the FED announced this program in Nov 2008 mortgage bond pricing improved, which means interest rates went immediately down. You can also see that in the summer of ’09 the improved again when the FED announced it would extend the program through 1st quarter 2010.

In case you don’t remember, since November of 2008, the Federal Reserve Bank of New York has been the single-largest buyer of Mortgage-Backed-Securities (MBS) on the Bond Market. This is where interest rates are determined. It’s all about supply & demand.

Mortgages are packaged and securitized, and major investors buy those MBS securities as investments. The larger the demand, the lower interest rates need to be. If demand falls, then interest rates will need to rise to make the MBS more attractive to investors.

Without this market, banks would not be able to replenish their funds to do more loans. Now you can see how important this is.

Part of the original Stimulus Bill was for the Federal Reserve to purchase over $1trillion in MBS. This has been happening in phases over the last 15mo, and IS the ONLY REASON rates have been this low. In other words, the US government has bought more MBS than all the other buyers combined, making demand strong.

The program was originally scheduled to end Dec 31st, but was extended through March 31st. (see the chart above in summer ’09 when they announced the extension) What will happen then? True market forces will take over. Many experts believe rates will jump rather quickly, and others say gradually. Either way, EVERYONE agrees that rates will go up probably by summer at the latest.

IF YOU ARE BUYING, YOU NEED TO GET YOUR ‘You Know What’ IN GEAR. Is it worth the risk to wait? When all the market data points to a rate increase, and not a decrease, there isn’t a compelling reason to hold back any longer. Same with refi’s. If you wait, you could miss the chance of a lifetime.

Call or email me today. Rates are still fantastic. If you are a first time or move up buyer, you have to call. Time is running out on the Tax Credit!