Is The Federal Reserve’s Bond Buying Program Coming To An End?

LoanLove.com comments on the recent speculation about whether or not the Fed will decide to taper their spending this December and explains why this decision will have a big impact on mortgage borrowers.

San Diego, CA (PRWEB) December 05, 2013

LoanLove.com is a borrower advice website that offers information and tools that can help even the most experienced homeowner, in a clear and simple way that even the newest potential loan borrower will understand. With their connections to some of the top rated industry professionals, first class knowledge and valuable resources, the website empowers homeowners, enabling them to find the loans that they will love, and is one of most trusted destinations for current news and loan advice. Now, with December’s big jobs report just around the corner, and a lot of talk going around as to how this will affect the Federal Reserve’s decision regarding bonds buying tapering when they meet on December 18th, Loan Love offers some insight into the situation and explains what the Fed’s Bond Buying Program is and why it is so important for those who are interested in getting a good loan rate for their mortgage.

First it is important to understand the situation that is playing out right now. Since the beginning of this month rates have been increasing steadily in reaction to the many economic reports that have been released. Mortgage rates are usually inversely related to economic growth, so stronger data from these reports results in weaker Mortgage Backed Securities (MBS) and higher rates. But what is really worrying the industry now is how the Jobs Report, due for release tomorrow, will look. As a December 4th report from Mortgage News Daily explains: “Friday is a potential game-changer, however, in that a strong result will lead many investors to believe the Fed may announce a reduction in asset purchases on December 18th. This would almost certainly push rates significantly higher, though markets will accomplish quite a bit of such a move if the data is strong enough on Friday.”

A video previously posted by LoanLove.com explains why the Federal Reserve’s decision to taper is so important. The video says: “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.”

This bonds program is what was primarily responsible for the record low mortgage rates late last year to early this year. The Loan Love video continues: “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 is more to the story than this, and borrowers can read more about it at LoanLove.com, including what the Fed's decision will probably mean to future mortgage rates. For more info, please click here to view the full video.


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