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Since the beginning of 2009, the Federal Reserve (Fed) has been purchasing mortgage-backed securities (MBS) sold by housing finance companies Fannie Mae, Freddie Mac and Ginnie Mae. A MBS is a debt or obligation that represents a claim on the cash flow from mortgage loans on residential properties. These securities are pools of thousands of individual mortgages which are packaged and auctioned off to investors. When investors stopped buying, the Fed stepped in and began to purchase 1.25 trillion in MBS.

The objective of the Fed’s program has been to hold home loan rates low and to keep banks lending to qualified borrowers. Lower mortgage rates provide the incentive for new buyers to enter the housing market and assist current home owners in reducing their monthly payment. As the program ends, investors and mortgage analysts are predicting that mortgage rates will begin to rise.

How high will mortgage rates go?

According to Lawrence Yun, chief economist for the National Association of Realtors (NAR), “30-year fixed rates are rock bottom and simply cannot stay at 5 percent.” Nearly all economists agree on that point. How fast, and to what extent rates will increase is a recurring question that is subject to much debate and speculation. Mr.Yun believes 30-year fixed rates will probably end up jumping to about 5.7 percent by year’s end. Other financial experts seem to believe that rates will rise somewhere between .25 percent to.75 percent by years end. For example, analysts at Credit Suisse and FTN Financial Capital Markets predict that mortgage rates will stay between 5 percent and 5.25 percent for the rest of the year. While Moody’s Economy.com projects about 5.7 percent, and Barclays Capital says 6 percent.

Paul Peebles, president of Old Capital Lending in Grapevine believes that although rates may increase slightly, it is still a great time to buy in the Fort Worth/ Dallas area. “Interest rates probably aren’t going to get much lower than they are right now,” he said. Over the past twenty five years, Peebles has seen his share of interest rate swings in the mortgage industry in which he personally closed over 4000 residential and commercial loans.

Mr. Peebles points out that interest rates on a 30-year fixed mortgage dropped to record lows last December and have only fluctuated slightly in the past three months. Mortgage giant Freddie Mac reported that home loan rates on a 30-year mortgage averaged 4.96 percent for the week ending March 19, 2010. “I don’t expect an extension of the MBS program on April 1. If the labor market is unable to create new jobs and housing takes a nose dive, then it is possible we see the Fed restart the MBS purchase program at a later date,” he said.

Fort Worth – Dallas home prices increase by 3 percent

In the latest monthly Standard & Poor’s/Case-Shiller Home Price Index, Fort Worth/ Dallas December home prices increased by 3 percent from a year earlier. It was the second month in a row that area home prices rose on an annual basis. The Case–Shiller Home Price Indices are constant-quality house price indices that include a national home price index, a 20-city composite index, a 10-city composite index, and twenty individual metro area indices.

Although it was the second month in a row that area home prices rose on an annual basis, Fort Worth/Dallas home prices are still about 6 percent below their peak in mid 2007, according to Case-Shiller’s numbers. Case-Shiller Home Price Indices are updated on the last Tuesday of every month.

Billy Parker is a Certified Mortgage Consultant, Certified Residential Mortgage Specialist, Certified Real Estate Instructor, and senior loan officer in Grapevine. Parker has also earned the Lending Integrity Seal of Approval from the National Association of Mortgage Brokers. Readers can send questions to billy@parkerlending.com or visit www.parkerlending.com. Questions of general interest will be answered in future columns.


Posted by Billy Parker on March 22nd, 2010 8:12 AMPost a Comment (0)

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