THE BASIS POINT

Fed Mortgage Bond Buying Officially Starts, What It Means For Consumers

Following their announcement last week, The New York Fed started buying mortgage bonds as of Monday. When bond prices rise on buying activity, yields (or rates) drop. Their target is to buy about $500b of mortgage bonds over the coming months to help push rates down and keep them down. They’ve hired Blackrock, PIMCO, Goldman and Wellington to manage this buying, and will make public announcements Thursdays on their buying activity.

For consumers looking to refinance their mortgage, this doesn’t automatically mean rates will keep dropping. They’ve already dropped close to their expected lows as private and institutional investors piled into mortgage bonds since Thanksgiving to get ahead of this Fed buying. These investors may exit and take profits as the Fed enters. So the current rate ranges we’re in are close to what consumers can expect. The exceptions where rates dip lower come on any given trading day. The way for a consumer to get the lowest rate is to…

…have their file completely approved with their lender of choice. This includes a full appraisal. The wait times for loan approvals are about 1 month right now. To lock a rate and then wait for approval will prove problematic for most refinancers. The trick is to reverse this process. Get approved and wait to lock.

As for consumers looking to buy homes, this Fed participation in the mortgage rate market will keep rates at nice ranges for the first quarter and perhaps the second. Beyond that, as with anything market related, it’s harder to predict.