Ben Bernanke

2010 East Bay Real Estate Update: Mortgage Interest Rates Rising In Q2, Q3, Q4!

The $64 Billion Dollar Question is, “When will the Federal Government stop purchasing Mortgage Backed Securities?”  You may ask why this is an important question.  Well,  the purchase of MBS by the Feds is the method in which they are guaranteeing mortgages so the lenders will continue to write them – assuring the lenders there is no risk to the home loan because it is risk-free.  From what I am noticing for the last twelve month trend of the Feds buying MBS, it may be just about over.  When it is over interest rates will begin rising in the very near future.

Did you know the Feds are scheduled to stop making MBS purchases by March 31, 2010? As you review the above chart you notice that the Feds are rationing out the remaining portion of the stimulus money as their purchase amounts are dwindling to what is expect to be a trickle within the next 60 days. For example, last week the Fed purchased $11 Billion in Mortgage Backed Securities, which leaves them with $66 Billion to spend out of their original $1.25 Trillion allotment. So about 95% of the total has already been spent and has purchased about three out of every four home mortgages the past twelve months. When such a large player in the market – the Feds, leaves, it is very likely that home prices may decline further because of it being more difficult to entice Buyers to borrow money because of the increased interest rates. Read more