Mortgage Back Security

Subscribe to articles about Borrower's Tips

Mortgage rates held almost perfectly steady today, despite the potentially important release of last month's meeting minutes from the FOMC the FED. That said, markets arguably had already reacted to some of today's information during yesterday's trading session when New York Fed President William Dudley alluded to it. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios remains 4.125%.
One of the factors helping mortgage rates stay historically low over the past few years is the Fed's direct purchase of Mortgage-Backed-Securities (MBS). Simplified to the extreme, this means the Fed is fronting the money for all new Agencies mortgages. Because people make payments on mortgages every month, the Fed is receiving income on their mortgage holdings every month. Currently, they reinvest all of that income back toward buying more MBS.
In 2011, the Fed laid out a loose framework for how they might begin to back out of their supportive role when the time was right. The first step at that time was to stop that practice of reinvesting the monthly income, assuming the outright purchases had already been wound down. But just yesterday, Fed's Dudley suggested that framework might need to be revisited, and perhaps the Fed should look at raising it's key policy rate before it decreases it's MBS reinvestment. This also complemented recent statements from other Fed members regarding the questionable health of the housing market.
In other words, the Fed is concerned about housing, and they want to make sure they're doing enough to support what they see as a vital cog in the recovery. Long story short, if markets are led to believe the Fed will reinvest money into the mortgage market for a longer period of time than previously thought, it's positive for the mortgage market. It helps rates move lower.
We definitely saw some of this yesterday after Dudley. Mortgage markets "bought the rumor" that the Fed was considering a change in their exit strategy. Then today, when the Minutes were released, that rumor proved to be true, but in a way that was as anticlimactic as possible. There was no change to the strategy, but the Minutes did indicate that the Fed was discussing it. As such, mortgage markets didn't really learn anything new, and thus had very little reaction today to the news they'd already begun accounting for yesterday.

California Mortgage Rates


Related Articles

March 24, 2015

Remodeling Projects: Evaluating Cost vs. Value

Remodeling Projects Evaluating Cost vs Value Home renovations can be tricky You want to improve your space and the way...

May 29, 2014

Fixed Rate Mortgage Fall Again

As of today 05-29-2014 Mortgage Rates Fall for a Fifth Week with 30 Year Fixed Mortgage at 4 125 If...

May 23, 2014

Lower Mortgage Rate helps the Housing Data

The housing data released this week reflected improvement With the help of lower mortgage rates April Existing Home Sales posted...

More Mortgage Articles