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Jason & Ryan Nicewarner

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Interesting 2010 Facts that You May be Overlooking

01-13-10
Jason & Ryan Nicewarner

Hello 2010!

Everyone is aware of the sweeping changes that came through the lending industry January 1st. We wanted to make you all aware of some events that may carry an even greater impact on mortgages and home buyers than the changes effective the beginning of the year.

The Federal Reserve has been buying mortgage backed securities to the tune of $1.25 trillion since January 2009. The prices of mortgage backed securities are directly linked to the interest rates that banks and lenders can offer. The Federal Reserve bought the securities in hopes to drive down interest rates and promote the lending of money. The Fed has been successful with their plan. This is the reason why we have seen historically low interest rates of the past year and the reason why rates have not fluctuated greatly over the past year.

The Federal Reserve plans to stop purchasing mortgage backed securities effective March 31st. The Fed has slowed its purchasing volume during the last quarter of 2009 and interest rates have reacted accordingly by increasing since the start of December. There is no guarantee that rates will reach the levels seen in May 2000 of over 8% but they will be more likely to rise above last years overall average of 6%. This does not take into account the fact that interest rates historically increase during the spring and summer months.

The above factors, coupled with the elimination of the tax credit at the end of April as well as potential FHA changes (increased down payment from 3.5% to 5%), could dramatically effect not only the cost of buying a home but the type of financing available to buyers. All of these changes are manageable; however, these events put a greater importance on trying to get buyers into homes now versus waiting until spring when the options from a lending standpoint may not be near as attractive.

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