This was passed to me by a lender.
March 31 expiration of the Federal Reserve Board's mortgage backed securities purchase program (which has kept home loan rates artificially low for over a year)
On March 1st we wrote in the Daily Update, “Any school kid knows the old saying…that March comes in like a lion and goes out like a lamb. But since this is the last month of the Fed’s Mortgage Backed Security purchase program, interest rates in March could very well come in like a lamb, and go out like a lion.” And yesterday – the lion roared. With only a few more days of Fed MBS buying support remaining, Mortgage Bonds plunged lower, causing many lenders to issue multiple re-prices for the worse. This is a reminder to us and to our clients – that rates move up much more quickly than they move lower.
So far this morning, Mortgage Bonds are slightly lower so far – but keep your seat belt strapped tight, as another huge auction looms at 1pm ET. This offering is a $32B 7-Year Note auction, and the results could ignite more volatility. The auction results so far this week have been disappointing overall, with investors demanding increased yield for their risk. Should this trend continue today, we could see the entire Bond Market move lower still. And with less Fed buying to support Mortgage Bonds, the safety net we have been accustomed to for the past fifteen months is being stripped away. A little over a year ago, the yield on the 10-Year Treasury Note was around 2.2% - and it has now moved up to 3.85%. Mortgage rates have hardly increased at all – which is obviously due to the enormous Fed buying. The training wheels are about to come off, and we’ll see how Mortgage Bonds do on their own soon enough.
Also, please remember the following changes:
- On April 5th, the cost of required up-front mortgage insurance for loans guaranteed by the FHA will increase from 1.75% to 2.25%.
- Later this spring, the amount of money that a seller can return to the buyer from their sale proceeds will be reduced from 6% to 3%.
- Coming just weeks before the April 30 deadline for the Home Buyer Tax Credit