Low Mortgage Rates Continue To Benefit From FOMC Subsidy
August 13, 2010 by admin
The last few years of economic recession has brought turmoil to the real estate industry as it produced more and more American homeowners who are on the brink of foreclosure for non-payment of their home mortgage. One of the main driving factors is due to the plight of unemployed and laid off American workers from their jobs, which gave them a really hard time managing finances. The government has already addressed the issue on mortgage troubles through a loan modification program.
In the real estate industry, the secondary mortgage market plays a crucial role in the mortgage business. The Federal Reserve System, being considered a private investor headed by Chairman Ben Bernanke, introduced its MBS purchase program as a way of helping out the homeowners and borrowers in their mortgage problems. How did it come to help to the mortgage issues of homeowners?
Bernanke’s MBS Purchase Program
MBS Purchase Program is an 18-month running program of the Federal Reserve Board with a plan of purchasing $1.25 trillion of mortgage-backed securities. These securities are mortgage bonds that are bundled in a package and sold to investors, both public and private. With the slow purchase of these bonds from investors, Bernanke came in the picture and purchased the said amount. This program was a big help to financially struggling homeowners since the mortgage rates became low and steady. Many of them were able to take advantage of the adjusted 30-year fixed low mortgage rates of near five to six percent for the entire duration of the program. It also helped the primary mortgage market or the lenders in a way that they were able to continue with the mortgage business to more borrowers.
The Impact of Ceasing the Purchase Program
Since the said program only ran for a year and a half, which ended last March 2010, the homeowners and homebuyers fear that the mortgage rates will again increase. However, according to Bernanke, the mortgage market will less likely be suffering from high interest rates again even if the Federal Reserve will cease buying mortgage-backed securities. He is positive that the situation is now gradually getting stabilized with the economy coming back to a normal condition. Many housing properties are currently made affordable with reasonable price and low mortgage rates. Bernanke and the current government administration have agreed to keep the market situation in this desirable condition by keeping the interest rates low. The government entities Freddie Mac and Frannie Mae have given its signal of purchasing more mortgage securities to continuously iron out the mortgage market.
The FOMC recently announced they would be shifty dollars into purchasing long term treasury bonds, a move that combined with their involvement in the secondary MBS market should help keep long term mortgage rates near historical lows for the balance of the year.