Well, there has been more interesting activity in the mortgage interest rate market this month. The Federal Government has been busy trying to keep the economic ship afloat and they are doing OK in some areas and poorly in others (my editorial opinion, of course).
I applaud the Fed’s for seeking to reduce mortgage rates and inspire home buying. On the other hand it was very foolish (opinion again) when Treasury Secretary Paulson came out last month and basically stated that the Fed’s were going to push mortgage rates down to 4 ½%. The problems with this statement are 2 fold:
- The federal government does not control mortgage rates. Rates are set by the supply and demand for mortgage backed securities (MBS) in the secondary market. Rates fluctuate up and down based on whether investors (primarily institutional) are buying or selling MBS. So, the government can’t make mortgage rates do anything.
- When Paulson claimed the Fed’s were going to get rates down to 4 ½% that set up an expectation in consumers across the nation. Instead of saying “Hey look, mortgage rates are at 50 year lows with fixed rate loans in the 5’s and I’m going to go out and buy a house!”, now people were saying “I’m going to wait to buy a new home because I think rates are going lower”. He basically put the brakes on the whole real estate market!
One of the things the Fed’s have done that has worked out has been the Federal Reserve Bank becoming a buyer of mortgage backed securities. The Federal Reserve Bank bought billions of dollars in MBS and due to this buying activity mortgage rates fell down to around 5%! The bad news is that rates started creeping back up again almost immediately as market forces took over again after the fed’s buying spree.
The good news is that mortgage rates are holding pretty steady in the mid 5’s and will hopefully stay in this range. When you can get a 30 Year fixed rate mortgage anywhere in the 5’s, that’s a great borrowing rate!
There has never been a better time to be a homebuyer with housing affordability at levels not seen in decades (real estate is selling cheap), mortgage rates at 50 year lows and a first time home buyer tax credit of up to $7,500 still available through June 30th. If you are considering buying a home there has never been a better opportunity!
Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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{ 1 comment… read it below or add one }
Richard Stabile 02.06.09 at 5:53 pm
You can’t jar bone it, you just have to do it. The fed can to a certain extent, by providing direct funds into the agencies, Fannie and Freddie, and lend at what ever rates it wants. They are buying mortgage bonds and funding. It is just going a tad slow, with some delays. If they continue the program and the dollar holds up, rates will go down to 4%. Congress is working on other incentives for buyers. With all the money hitting the streets, it has to go somewhere.