Mortgage Update: Government Backing Out!
News Not Good For Interest Rates
Government Bailing?
The Fed kept mortgage rates low in 2009 by acting as a buyer of securities issued by or backed by three government-controlled entities: the Government National Mortgage Association (known as Ginnie Mae), Fannie Mae and Freddie Mac. These so-called agency securities provide funding for more than half of all U.S. home loans outstanding. The government announced that they want to reduce their buying and let the banks step up and own them. This may cause mortgage rates to rise as we all know banks are more than happy to pass along any incremental risks on a loan to the consumer in the form of higher rates.
So, expect rates to rise in 2010. The anticipated economic recovery along with the Fed mortgage back security purchase program ending at the end of the first quarter will be catalyst that will drive rates higher as the year progresses.
This potentially has a big effect on the real estate market as a rise in the interest rates on a jumbo loan can equate to highly monthly payments to the consumer and the difference between qualifying for a loan or not. Real Estate in Menlo Park, Atherton, Palo Alto as well as our surrounding luxury real estate markets are affected as a small change in interest has a major effect on the monthly payment due to the high loan amounts.
I’ll keep an eye on this and we’ll see what happens in the next couple of months with interest rates.
