Fed Bond Purchases Not In Danger Of Being Tapered Off Just Yet

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LoanLove.com gives commentary on recent developments in the Federal Reserve reported by MND and gives some insight into the bonds buying program in one of their articles.

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. The experts at Loan Love are consistently finding new ways to aid their readers with their mortgage loan issues by providing them with helpful home loan planning tips and strategies. Now, with the recent confirmation hearing of Janet Yellen, the nominee set to replace Ben Bernanke as the new Federal Reserve chairperson, resulting in improved mortgage interest rates, the borrower advice website seeks to keep their readership informed of what is happening with the future of Fed bond purchases and why Ms. Yellen’s testimony has had such an impact on home loan rates.

While there are many factors involved in lower mortgage interest rates, one of the chief things that the recent reduction can be pinned down on is the fact that the new Fed chair nominee has assured the public in her remarks that she would keep Fed policy consistent with the goals of the previous chair. In other words, she will continue to hold off on tapering the stimulus program until the economy showed significant improvement. This has caused rates to go down again, after weeks of being on the rise.

As a November 14th report from Mortgage News Daily explains: “Mortgage rates continued lower today following the Janet Yellen's confirmation hearing before the Senate Banking Committee. Yellen is the nominee to replace Bernanke as the Chair of the Federal Reserve, and her stance on monetary policy is tremendously important to bond markets (including mortgage-backed securities, which most directly influence mortgage rates). The most prevalently quoted conforming 30yr fixed rate for ideal scenarios (best-execution) is now well into 4.375%, and at this point it's closer to 4.25% than 4.5% though there are lenders on either side. The past two days have been a big relief for mortgage rates as they've undone a measure of damage done by Friday's jobs report. This sort of strength is not typical following such a big dose of weakness (when the weakness is due to the official monthly jobs numbers).”

But what does Ms. Yellen’s stance on monetary policy have to do with today’s interest rates. The answer here is the impending threat of Fed bonds buying tapering. As an article from LoanLove.com explains: “The Federal Reserve began buying bonds to help stimulate consumer spending in an effort to prop up the sagging economy. The measure was meant as a temporary stopgap until the economy showed signs of improving over the long haul. Now that housing sales have been rising and unemployment has been falling, the Fed has begun to consider phasing out the bond-buying program , a move that has homebuyers, lenders and investors holding their collective breath.”

“See, as long as the Federal Reserve Bond Buying Program continues, it does several things: keeps interest rates low – which means cheaper credit and mortgages; inspires consumer confidence which spurs buying; and both increases the demand for bonds and inspires confidence in investing in bonds. Bonds are inversely tied to short-term and long-term interest rates; so, when bond rates rise and stay relatively strong (as they have been under the Fed program), interest rates fall. That, in turn, means that mortgage rates fall, which means consumers are more likely to buy more homes.”

With reassurance that the mortgage industry will not need to deal with the phasing out of the Fed’s program just yet, rates have bounced back and will continue to make it easier for home buyers and owners to find affordable home loans that will fit their needs.

For more information on how the Federal Bonds Buying Program is affecting mortgage rates, please visit LoanLove.com for the full article.

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Kevin Blue
Loan Love
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