"Twist and Shout"

Twist and shout." The Fed inserted a “twist” into the market last week, but only time will tell if their decision will be cause for shouting. Read on to learn what the Fed did, and what this could mean for home loan rates.

The week began with speculation that the Fed would announce “Operation Twist” after its two-day meeting of the Federal Open Market Committee. What is Operation Twist? Essentially, Operation Twist is where the Fed sells its holdings of short-term securities and Notes and then purchases longer-term Notes and Bonds in order to try and lower longer-term rates even further. And Operation Twist is exactly what the Fed announced, but their announcement came with some key surprises:



First, the Fed’s statement was more strongly worded than expected, as the Fed said that there remains “significant” risks to the downside for the US economy.

Second, the funding for Operation Twist was larger than expected, coming in at $400 Billion.

Third, the Fed said they will reinvest principal payments on their current holdings of agency debt back into Mortgage Backed Securities…which led to a huge rally in the Bond Market Wednesday, while Stocks took a nose dive. 

So what does all of this mean for home loan rates? The Fed’s statement has heightened pessimism, fear, and concern...and normally those sentiments help Bonds (including Mortgage Bonds, to which home loan rates are tied) improve as investors seek a safe haven for their money. But it’s important to understand that even if Bonds improve, home loan rates may not improve much further. Why? It is basic supply and demand: lenders’ pipelines have been overflowing with people wanting to refinance or purchase a home and take advantage of the historically low rates we’ve seen. This level of volume flowing into the system has already created a backlog of work for lenders, which means they may not pass along all the gains we are seeing in the Bond Market onto their rate sheets.

The bottom line is that home loan rates remain near historic lows, and now is a great time to purchase or refinance a home.

Provided to you exclusively by:
Margie  Morris
Licensed Mortgage Specialist
MORTGAGE AMERICA, INC.
Cell: 334-657-1338
Fax: 334-351-0575
NMLS: 198905
E-Mail: margiem@mortgageamerica.com
Website: www.margie-morris.com