Federal Reserve Bond Buying Program Still In Jeopardy? – Loan Love Weighs In

The recent confirmation hearing of Fed chair nominee, Janet Yellen, will undoubtedly affect mortgage rates. A video from LoanLove.com explains why.

San Diego, CA (PRWEB) November 16, 2013

LoanLove.com is a borrower advice website that provides detailed insights into the mortgage industry in a fun and entertaining way. The team at LoanLove.com is devoted to help empower both first time and experienced homeowners with valuable resources, first-class knowledge and connections to top-rated industry professionals and has the mission of helping consumers and borrowers to obtain the latest information on mortgage lending trends, the real estate market and the U.S. financial landscape in order to help them obtain a home loan that they will love. Recently Janet Yellen, the presidential nominee to succeed Ben Bernanke as chairman of the Federal Reserve, had a confirmation hearing outlining her plans for the Fed. Mortgage rates will be affected by this one way or another, because this meeting will give the mortgage world a better idea of when they can expect the winding down of the Federal Reserve Bond Buying Program.

A November 13th report from Mortgage News Daily says: “Janet Yellen's prepared remarks for tomorrow's confirmation hearing were released at 4:30pm today. While there was little reason to expect a significant reaction in bond markets, we got one just the same. In fact, it was the only noticeable source of inspiration in an otherwise uninspired day. The only problem is that nothing jumps off the page as the clear source of the positive reaction. The most insightful thing that could be said about it at the moment is that she doesn't mention a reduction in asset purchases, but what do markets expect the first question to be about at tomorrow's hearing? Bottom line, Yellen said nothing she hasn't already said before, but the modicum of positivity was enough to send snowballs rolling wildly down the hill amid late session illiquidity. In plainer English, that means that trading levels are easier to push around at this time of day, and all it took was some unexpected strength to set off a chain reaction of forced buying.”

While it appears that the bonds buying program is safe for now, it is inevitable that the Fed will need to start tapering their purchases at some point. Luckily it looks like there is still a chance for borrowers to take advantage of the low rates that the program is making possible. For those who are not sure what the connection is between the Fed’s purchase of bonds and current mortgage rates, a video from LoanLove.com explains: “So the Federal Reserve is talking about tapering off its bond-buying program. Big deal. You're probably asking, "What does this have to do with me?" Well, if you're even the least bit interested in getting a mortgage, it's got a lot to do with you. The Federal Reserve has been buying bonds for a while now -- since the beginning of 2013, it's been buying $85 billion of mortgage - backed securities -- bonds -- every month. Before that, it had been buying $40 billion per month. That helped inspire consumer confidence and keep bond rates high. The Fed's program also helped keep bond rates high.”

The video continues saying: “Now, mortgage interest rates and bond rates are inversely proportional; that means when one goes up -- the other goes down. So, since bond rates were going up while the Fed was in the middle of its bond-buying program, it stands to reason that mortgage rates were going down during the same time. Now that the Fed has announced it's going to stop buying bonds, bond rates have begun to fall and -- yep, you guessed it -- mortgage rates have begun to rise. Of course, there's more to the story than that, and you can read more about it LoanLove.com, including what the Fed's decision will probably mean to future mortgage rates.”

For more information, watch the full video by clicking here.


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