Back in December, the Fed quietly announced that it was allocating $500B to buy Mortgage Backed Securities to force mortgage rates lower to increase home purchases.
After a brief drop, rates have been climbing the last three weeks.
What's going on here? Did the Fed change its collective mind?
Actually, the Fed is still buying, but they're not buying the MBS pools that will lower rates. They're mainly buying MBS 6.0% coupons.
Why?
The guys at the Fed are no dummies. They know homeowners are refinancing. So, they're buying the MBS pools that are likey to hold a lot of mortgages that will be refinanced. This gives them their money back in a short amount of time, keeps a lid on mortgage rates and gives them a decent short-term profit.
Drew Sygit is President of The Lending Edge and holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor. He's spoken for HUD, has written numerous articles and is a mortgage industry advocate for loan originator licensing and consumer education. He can be reached at 248-356-3739, dsygit@TheLendingEdge.com or read his blog: http://drewsmortgagenews.blogspot.com.
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