Fed Moves Could Drive Rates to New Lows

Mortgage and Lending with Cherry Creek Mortgage


Mortgage Daily reported that Rates look to be going down to record lows...

Mortgage rates recently fell to their lowest levels on record. But potential moves discussed Thursday by a Federal Reserve Board governor could have new records on the horizon.

On Thursday, Oct. 6, Freddie Mac reported that the 30-year fixed-rate mortgage averaged 3.94 percent -- the lowest level ever recorded by the secondary lender.

Interest rates have since drifted higher.

But there is a good chance that they could head lower again if Fed Governor Daniel K. Tarullo has his way.

In a prepared speech for the World Leaders Forum at Columbia University in New York, Tarullo pointed to persistently high unemployment as the biggest problem facing an economic recovery.

He explained households built up debt that seemed manageable before the housing bubble burst. But as housing prices have since declined, that debt now appears burdensome.

"Without more effective efforts to address the manifold problems affecting the housing market, there is a good chance that the recovery will lack strong momentum for some time to come," Tarullo stated.

He countered arguments by some that Fed monetary policy has gone too far by noting that the Federal Open Market Committee is required by the Federal Reserve Act to promote the goals of maximum employment and stable prices.

Tarullo said that the large-scale purchase of additional mortgage-backed securities should be moved to the top of the list of priorities. He noted that similar moves in November 2008 and March 2009 provided support to mortgage lending and housing markets.

In addition to luring investors to bonds and equities, a large-scale MBS purchase program could put more downward pressure on mortgage rates -- making home purchases more affordable and freeing up disposable income for consumer spending through refinances.

Tarullo addressed concerns that a small segment of wealthy consumers with high credit scores would see most of the benefit from such a Fed move by calling for policy changes that would allow negative-equity borrowers to refinance.

While he acknowledged that an MBS repurchase program won't solve all housing market problems, "I believe that MBS purchases are worth considering as a monetary policy option precisely because they carry the promise of addressing the feature of the current aggregate demand shortfall that differs from typical recessions and recoveries."

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