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Federal Reserve Bank and Ben Bernanke Affect Mortgage Interest Rates

Posted on | November 4, 2009 | No Comments

The Federal Reserve Bank and Ben Bernanke have done a great amount to keep mortgage interest rates low but is it the case that this is going to cause big problems in the future?  Mortgage interest rates have been under 5% since the beginning of September and for the year we are going to see average mortgage rates very close to the 5% mark and much of it is due to the Federal Reserve Bank.

Since March, the Federal Reserve Bank has been purchasing Mortgage Backed Securities (MBS) along with US Treasuries.  The Fed recently concluded the US Treasury purchase program at the end of October.  Since the Fed made the announcement that this was going to happen we have seen the 10 year treasury rate yield carve out a strong up trend.  That trend has moved the 10 year yield all the way above its 50 day moving average.

The Fed has mentioned that they are not going to stop buying MBS until, at least, March 2010.  The purchases of MBS are likely to keep mortgage rates low but eventually reality is going to set in and the market will set interest rates.  The troubling thought is that when the Fed takes their hand out of the pot we could see mortgage rates shoot all the way up to 6% or 7% which would greatly hurt the overall economy.

As of now we are continuing to see the purchases of MBS which should keep mortgage interest rates relatively low but the conclusion of US Treasury purchases should push rates to around the 5.5% range. For those wanting to refinance and get a rate under 5% now would be the time to do this because rates are likely to move higher very soon.

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Author: Jesse Wojdylo

Category: Current News

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