Hang onto your hats - it looks like mortgage rates could be
headed down even further.
The Federal Reserve announced today that it will take further
steps to drive down mortgage and other interest rates in an effort
to boost the economy. The Fed said it will increase its purchases
of mortgage-backed securities by $85 billion a month at least
through the end of the year and beyond that if the outlook for the
labor market does not improve substantially.
In addition, the Fed announced that it expects to maintain the
federal funds rate at near 0 percent for at least two more years,
through mid-2015. Furthermore, it expects to maintain its "highly
accommodative stance toward monetary policy" until well after the
economy strengthens in order to promote its twin mandates of
maximum employment and price stability.
The moves are intended to lower interest rates, including those
on mortgages but other forms of credit as well, in order to boost
lending and give a jolt to the economy. Mortgage rates have fallen
each time the Fed announced similar previous measures, so it stands
to reason they'll soon drop again, though it's not clear how
Expect jump in refinancing
Lower mortgage rates will likely spur a new round of refinancing
by homeowners looking to trim their monthly mortgage payments.
However, it could mean more difficulty for homeowners seeking to
refinance low- or negative-equity mortgages through HARP, at least
When rates fall, it typically produces a rush of well-qualified
borrowers seeking to refinance, so lenders tend to concentrate on
them rather than the riskier borrowers refinancing through HARP.
However, once the initial surge passes, lenders will likely be more
willing to work with HARP borrowers once again.
It's less clear what impact the Fed's actions will have on the
housing market overall. Although housing is a big part of the
economy and lower interest rates usually help boost home sales,
home prices and interest rates are already so low it's not clear
whether further rate reductions will have much effect.
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