The Fed will end its Treasury and MBS purchases next month, but the impact on mortgage rates likely will be small. Over the last few years, these bond purchases, known as quantitative easing, helped push mortgage rates down to the lowest levels in decades. Mortgage rates then moved off their historic lows in May of last year when the Fed unexpectedly announced that it would soon taper the bond purchases. Since then, the decreases in monthly purchases have been anticipated far in advance by investors, causing little market reaction. As a result of quantitative easing, the Fed was the eventual investor in the majority of all mortgages originated during the bond purchase program. The Treasury and MBS purchases have caused the Fed’s balance sheet to expand to roughly $4.4 trillion dollars from less than $1.0 trillion in 2007. While the Fed will no longer purchase additional bonds, it will hold the size of its portfolio steady by reinvesting maturing securities. Eventually, though, Fed officials intend to reduce their holdings of MBS. Investors will be looking for hints about the timing for the Fed to begin to shrink its portfolio and for the pace at which it will occur. The [...]
Freddie Mac reported that average mortgage rates rose in the week through June 27, with 30-yrs hitting 4.46%, from 3.93% the prior week. This was the largest weekly increase in 26 years. While the survey results are released on Thursday, the timing of the data collection means that the data better reflects changes from Monday to Monday or Tuesday to Tuesday than Thursday to Thursday each week. The Primary Mortgage Market Survey (PMMS) is sent on Monday with a response due back by Wednesday. Most responses are completed and submitted on Monday or Tuesday. The responses are averaged and the results are released on Thursday. The survey results, therefore, reflect the average rate and points borrowers were being offered on Monday and/or early Tuesday. Changes in the market since Monday/Tuesday can make the published data misleading when compared to rates and points actually being offered on Thursday. This week, mortgage rates have improved substantially since the survey period earlier in the week. If the survey were conducted this morning, the results for 30-yr rates would be 20 to 25 basis points lower.