Government Shutdown's Impact on Mortgage Rates

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The Federal Savings Bank informs readers of the effect of the government shutdown on mortgage rates.

VA and FHA home loans at The Federal Savings Bank

The Federal Savings Bank

The effect on the mortgage market has so far been minimal.

After weeks of failed negotiations, the federal government shutdown over budget disputes. The Federal Savings Bank has been answering many prospective clients about questions regarding the government shutdown. As Americans face the first government shutdown in nearly two decades, the impact on the housing and mortgage market will most likely have minimal consequences if the ordeal is short-lived.

Federal Reserve quantitative easing
The government shutdown will likely have an effect on the Federal Reserve's quantitative easing program, and its decision to taper its monthly bond purchasing level of $85 billion. In previous statements, Federal Reserve officials have made it clear that they will not begin to reduce their stimulus spending efforts until unemployment had reached 6.5 percent.

The shutdown will effectively halt the Bureau of Labor Statistics from collecting new labor data releasing its next scheduled employment report for September. The labor report was scheduled to be made available on Oct. 4, but the shutdown could affect the release date and, by extension, the decision by the Federal Reserve.

"During the shutdown period, BLS will not collect data, issue reports, or respond to public inquiries. Updates to the site will start again when the Federal government resumes operations. Revised schedules will be issued as they become available," the Bureau's website stated.

In addition to the labor report, the U.S. Import and Export Price Index, the Consumer Price Index and the Producer Price Index are all scheduled to be released in the coming weeks. These data are indicators of the economic recovery but could also be delayed due to the shutdown. The Federal Reserve may be unable to make a decision to taper bond purchasing without the economic data.

Future of mortgage rates
The effect on the mortgage market has so far been minimal. When the Federal Reserve began hinting that it would start to taper off its monthly bond purchasing in September, mortgage rates jumped to an average of 4.8 percent. After the announcement that the bond buying rate would remain the same, rates began to fall and have remained around 4.25 percent since.

According to the latest Mortgage Applications Survey by the Mortgage Bankers Association, mortgage applications decreased 0.4 percent in the week ending on Sept. 27. The report also revealed that refinance activity increased from 61 percent the previous week to 63 percent of all mortgage activity last week.

Applications for a VA Home loan and loan refinance will not be affected by the shutdown. The FHA and the Department of Housing and Urban Development have maintained that they will remain open during a shutdown, pushing through mortgages for first time home buyer loans.

It is unlikely that the shutdown will have a major impact on the mortgage market directly, and rates will probably remain low until the Federal Reserve's decision. The recovery of the housing market is one of the biggest contributors to the overall health of the economy. While the shutdown is ongoing, borrowers can be assured that loans and mortgage refinance applications will still be processed. "We expect the government shutdown to be short lived" says Nick, a banker at, The Federal Savings Bank.

Contact The Federal Savings Bank to explore affordable mortgage options.

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