Anyone watching mortgage rates couldn’t miss the news this week that the Fed will begin to “taper”, or cut back on their purchases of MBS and Treasury bonds. All eyes are on the impact this will have on interest rates. Their plan to purchase $10bb less per month signals the Fed’s growing confidence in the economy. Important to note though is that this means they will still purchase $75bb per month in MBS and treasuries for the time being, which still amounts to considerable economic stimulus.
Much less publicized, but more immediately significant for interest rates, were two other announcements. The FHFA announced a .1% increase in the guaranty fee for mortgages delivered to Fannie Mae and Freddie Mac, effective in the spring, which amounts to an automatic .1% increase in interest rates. Also, Fannie Mae announced new Loan Level Pricing Adjustments (LLPAs) for loans delivered to them, also beginning in the spring. LLPAs are based on loan characteristics such as credit score, LTV, loan purpose, occupancy, number of units, product type, etc. These adjustments will also increase the cost of borrowing for homeowners. The net effect is that interest rates will likely rise a bit in the near term, so take advantage of current rates while you can.