The Feds and Mortgage Rates

    By Jesse Tuttle | Small Business

    Wednesday’s announcement: A MLO Perspective

    As a Mortgage Loan Originator (MLO), I was busy locking rates in last week in anticipation of the announcement that the Federal Open Market Committee (the “Feds) since the Feds and mortgage rates tend to go hand in hand. Mortgage interest rates on Monday were good and then they increased quite a bit on Tuesday. Let’s backtrack a little bit though. In May we were seeing historic lows in interest rates. This all changed when speculation began about the Feds tapering buying assets by $10 billion a month – including mortgage-backed securities. This caused mortgage interest rates to increase over the past few months and Wednesday of this week was supposed to be the big day; the official announcement that the tapering would begin which would cause rates to increase dramatically.

    However, a few things happened that were game changers in the mortgage industry. First off, within the committee the former Treasury Secretary Larry Summers removed his name from the running for chairman of the Federal Reserve. Since he is now out of the race, it is more likely that Fed Vice Chair Janet Yellen will take over as the chairman. She is more likely to continue policies that would keep mortgage interest rates low, like current chairman Ben Bernanke is doing now. This explained the drop in rates on Monday.

    The announcement

    Then Wednesday finally came about. What would have been a dreadful day at the long speculated and anticipated announcement about tapering quantitative easing was turned completely on its head! The Feds are going to continue to buy mortgage back securities at the same pace ($40 billion a month). After meeting, they agreed that the housing market (and economy) is still in recovery. If they were to taper off buying mortgage-backed securities, it would most likely slow down or even reverse the recovery efforts. Mortgage rates would have continued to increase making the option of purchasing a house unavailable to more people. The committee also wants to see more evidence that the current economic growth will be more sustainable on its own before they decide to taper quantitative easing.

    What next?

    So what does this mean to me? I believe the announcement is good news. I am going to be able to continue to offer low-interest rates to clients who are looking to purchase a house or refinance their current home. Lower rates also give buyers more purchasing power which also makes me extremely happy for my clients since it gives them that much more of a chance to purchase their dream home. However, the industry isn’t completely out of the woods yet. While rates are looking good through the end of 2013, rates in 2014 are still unknown. There is so much weighing on the decisions of the Feds and what Bernanke has to say. I’m anxiously waiting for the next announcement already since I constantly watch the Feds and mortgage rates. I’ll be sure to keep you posted. As always, feel free to contact me at

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