June 24th, 2013 5:40 PM by BILL WILBANKS
I'm probably in left field with this "What if...hypothesis", but here it is. Previously for many months the Fed has been putting out comments that they were in for the long haul with their MBS purchase program and determination to keep the Fed rate at about 0.00%-0.25%.
Mr. Bernanke made what seemed an abrupt statement to many last Wednesday compared to all previously made for well over a year that the Fed believes the economy shows definite (definite?) signs of improvement and though they will constantly be monitoring the situation, they will most probably be "Tapering" their MBS purchases from the current $85 billion monthly and he would expect to be done with it overall by this time June of 2014. The Fed purchases put that much money back in the mortgage market and helped keep mortgage rates low, since little private money wants to chase rate yields at these levels, therefore the Fed purchases helps the rate improve.
Though he tried to attach a few caveats, it boiled down to they will be "monitoring the situation" to tweek their MBS purchase as needed. He had to have known the markets would react to this just because he brought it up as a possibility. I just don't believe the feds realized how much (my opinion). The 10 year treasuries have increased over 100 basis points since May 1st (around 1.50% to today around 2.56% at end of the afternoon. That's almost a 60% hit. The stock market has certainly reacted for 3 days as well, watching the 10 year more than normal. Throw in China's follow up today with their EFX results since the Fed action and here we go.
In the 3 business days since his news conference last Wednesday the 30 year fixed mortgage rates have skyrocketed from the high 3's to the mid to high 4's. That's at least 0.625% to 0.875% in "rate" depending on the lender. That much of a rate increase is huge in 3 days and not seen in around 15 years. Even in 2008 when it hit the fan!
Good news is hard to find in the short run other than the fact that rates have been so historically low (as low as the low 3's on the 30 fixed recently) these increases have really not been that large an impact on mortgage monthly payment yet, unless you factor in the borrower that was near the limit on qualifying ratios it puts over who has his purchasing power reduced. The borrower who was on the cusp of being able to take advantage of refinancing into a lower rate and payment, or, the fact that both Fannie Mae and Freddie Mac have steadily increased their price adjustment add-on's to increase their funds in reserve against losses as has the FHA program on both the Up Front Mortgage Insurance Premium and monthly premium for the same reason. Good job DC...just keep that help coming.
I'm from the government and I'm here to help...right? On top of that the current regime would like to take away or drastically modify the mortgage interest deduction that has helped homeowner's for decades realize the American Dream of home ownership. That increases taxes if they do. So far cooler heads have prevailed. Ok...getting too political for you? Hardly, these are real issues folks. I feel like we are bystanders sitting back watching the idiots play the crazies and nobody remembered to bring the ball...
Moral? Jump off the fence and get with the program as soon as you can. Rates and home prices aren't waiting on anyone!