Special Update: Fed Ends Bond Purchases

2017-12-20T17:34:12+00:00 October 30th, 2014|Categories: Special Update|Tags: , , , , , , |

The Fed will end its Treasury and MBS purchases next month, but the impact on mortgage rates likely will be small. Over the last few years, these bond purchases, known as quantitative easing, helped push mortgage rates down to the lowest levels in decades. Mortgage rates then moved off their historic lows in May of last year when the Fed unexpectedly announced that it would soon taper the bond purchases. Since then, the decreases in monthly purchases have been anticipated far in advance by investors, causing little market reaction.   As a result of quantitative easing, the Fed was the eventual investor in the majority of all mortgages originated during the bond purchase program. The Treasury and MBS purchases have caused the Fed’s balance sheet to expand to roughly $4.4 trillion dollars from less than $1.0 trillion in 2007. While the Fed will no longer purchase additional bonds, it will hold the size of its portfolio steady by reinvesting maturing securities. Eventually, though, Fed officials intend to reduce their holdings of MBS. Investors will be looking for hints about the timing for the Fed to begin to shrink its portfolio and for the pace at which it will occur. The [...]

Special Update: Future Fed Policy

2017-12-20T17:34:12+00:00 July 16th, 2014|Categories: Special Update|Tags: , , , , , , |

The recently released Fed Minutes and testimony from Fed Chair Yellen have provided more detail in some areas about future Fed policy. There are two primary tools that the Fed is currently using, bond purchases and the fed funds rate.  Bond purchases from the Fed, which include both Treasuries and mortgage-backed securities (MBS), exert a direct influence on mortgage rates. The added demand for MBS from the Fed raises MBS prices. Since mortgage rates are set based on MBS prices, this helps keep mortgage rates low. The Fed's portfolio of MBS has been growing at a scheduled pace as the Fed has been reinvesting principal payments received and adding new MBS. The Fed has been tapering its bond purchases, though, and the Minutes indicated that the purchases of new MBS will end in October as expected. After that time, the Fed plans to continue to reinvest principal payments received, which will hold the size of its portfolio steady, at least until the first fed funds rate hike. Principal payments have been averaging $16 billion per month, so investors were pleased that the reinvestment will continue for quite a while.   The fed funds rate, a very short-term interest rate, has [...]

Special Update: Fed to Reduce Bond Purchases

2017-12-20T17:34:12+00:00 December 20th, 2013|Categories: In The News|Tags: , , , , , |

Anyone watching mortgage rates couldn’t miss the news this week that the Fed will begin to “taper, or cut back on their purchases of MBS and Treasury bonds.  All eyes are on the impact this will have on interest rates.  Their plan to purchase $10bb less per month signals the Fed’s growing confidence in the economy.  Important to note though is that this means they will still purchase $75bb per month in MBS and treasuries for the time being, which still amounts to considerable economic stimulus.  Much less publicized, but more immediately significant for interest rates, were two other announcements.  The FHFA announced a .1% increase in the guaranty fee for mortgages delivered to Fannie Mae and Freddie Mac, effective in the spring, which amounts to an automatic .1% increase in interest rates.  Also, Fannie Mae announced new Loan Level Pricing Adjustments (LLPAs) for loans delivered to them, also beginning in the spring.  LLPAs are based on loan characteristics such as credit score, LTV,  loan purpose, occupancy, number of units, product type, etc.  These adjustments will also increase the cost of borrowing for homeowners.  The net effect is that interest rates will likely rise a bit in the near term, [...]