Fed stopped buying Mortgage Backed Securities; What happens to Mortgage Rates now?


Mortgage rates took a major beating last week after Fed officially stopped buying mortgage backed securities. Fannie Mae 30 year (4.5%) mortgage bond opened the week at 100.44, and closed at 99.47, a drop of whopping 97 bps (see chart below). The mortgage rates for most of the conventional loan programs had jumped up by .25%. These are ominous signs.

If last week was any indication this is not going to be a slow rise in interest rates as a lot of experts had predicted. From what we have seen so far we are definitely looking at mid -high 5 percent range by the end of the year, if not higher. For the real estate market that is still fragile, more than .5% increase in rates could come as a big blow.

If you were looking to buy a house and had a Pre-approval done, it may be a good idea to get it reviewed again by your lender. An already .25% increase in rate means that you may not qualify for the same amount of mortgage that you did 1 week back. And if you are looking to refinance, you opportunity to get a low rate may be limited.