Federal Reserve Board Announces Slowing Down In Buying Mortgage Bonds

Gustan Cho Associates are mortgage brokers licensed in 48 states

This ARTICLE On Federal Reserve Board Announces Slowing Down In Buying Mortgage Bonds Was PUBLISHED On December 20th, 2014

Why the Federal Reserve Board announces a slowdown in mortgage bond purchases

The Federal Reserve Board has recently announced that the Fed has made its decision to slow down:

  • The Central Bank will eventually stop buying mortgage bonds and treasury bonds
  • The action of the Central Bank can have a great impact on the mortgage industry
  • It can affect mortgage rates nationally
  • After 7 years of aggressively buying mortgage bonds and treasury bonds, the announcement of the Federal Reserve Board that it is stopping buying mortgage bonds came as a shock
  • The news put uncertainty to both mortgage professionals, banking industry experts, Wall Street as well as economists nationwide
  • This news was expected for many months
  • Actually, the news was expected for the past year
  • The stock market was very volatile whenever another rumor was released

In this article, we will discuss and cover the Federal Reserve Board Announces Slowing Down In Buying Mortgage Bonds.

History Of Federal Reserve Board Buying Mortgage Bonds

Right after the Great Recession of 2008 started in October 2008, the Federal Reserve Board released a statement that they were going into the business of buying mortgage bonds:

  • The reason why the Central Bank buys mortgage bonds is to stabilize and stimulate the economy and the market
  • The Federal Reserve Board never has done this before and it was the first in Federal Reserve Board history
  • Their mission was to manipulate mortgage rates to go down
  • Low mortgage rates will encourage homeowners to refinance their home loans for a lower rate
  • This enables homeowners to have excess spending cash where they can spend and spur up the economy
  • The driving of mortgage rates down was also to stimulate first time home buyers to purchase new homes due to the low-interest rates
  • The lowering of mortgage rates was also to get the housing market out of the housing slump and recover from the worst real estate meltdown in United States history

Real estate values have plummeted to historical lows and never have we had a real estate meltdown like the one we had in 2008.

The Recovery Of The Housing Market

What is the revival of the housing market

The housing market did not start recovering until 2011 and it has been the recovery of the Great Recession of 2008 has been the slowest recovery of any recession in U.S. History.

  • Bankruptcy and foreclosure rates have reached historical highs
  • Unemployment rates have skyrocketed to double digits for many years after the 2008 financial disaster
  • The mortgage bond purchase program has gone on for almost 7 years since the start of the Great Recession of 2008 and is now coming to an end
  • We all knew that the Federal Reserve Board would not go on purchasing mortgage bonds forever
  • It was good while it lasted
  • Millions of home buyers and homeowners have enjoyed historically low mortgage rates for many years
  • The Nation enjoyed the lowest mortgage rates during these periods

Low mortgage rates have given many first time home buyers to lock in a 30 year fixed rate mortgages for as low as 3.0% which has been unheard of prior to 2008.

Why Has The Fed Decided To Stop Buying Mortgage Bonds?

The Federal Reserve Board’s decision to stop buying mortgage bonds is due to the fact that they believe that the economy is doing much better and the recession is over.

  • The Federal Reserve Board feels that a slight increase in interest rates is healthy
  • This is because the unemployment numbers are getting lower every month
  • The unemployment claims are getting lower as well
  • However, this is not the case according to many analysts
  • Economic experts think that the reason unemployment numbers are low
  • Experts believe the unemployment numbers are getting lower every month
  • This is because the workforce has given up looking for jobs or have taken jobs that they are way too overqualified for
  • For example, I know many engineers who used to make six figures who have settled for jobs such as car salesmen, bartenders, waiters, seasonal workers, or other jobs that they are overqualified for
  • I know of attorneys who used to make $500,000 per year settling for jobs as insurance agents making a fraction of the money they used to

However, the Fed thinks that those folks looking for work are getting them easily and corporate America is hiring aggressively.

How Does The Fed Stop Buying Mortgage Bonds Have Impact Of Mortgage Rate?

How Does The Fed Stop Buying Mortgage Bonds Have Impact Of Mortgage Rate?

The Federal Reserve Board does not directly control mortgage rates, However, the Fed buying mortgage bonds do spiral mortgage rates lower.  Mortgage yields on mortgage bonds are also affected by the political and economic status and impact both nationally and internationally.  Whenever there is major bad news, whether it is the economy or political, bad news drives mortgage rates down.  Once the Federal Reserve Board stops buying mortgage bonds, you can expect that mortgage rates will gradually increase.  Homebuyers should not panic.  Most mortgage experts do not see a major sudden spike in mortgage rates.  Even if mortgage rates are expected to increase, most industry experts feel that the mortgage rate increase will be a gradual increase.

Related> Fed confident in the economy

Related> Fed Reserve caps its bond purchases

Related> What’s next for funds when the Fed stops buying bonds?

Related> Feds ends bond-buying