Mortgage Rates Likely to Increase after March 31, 2010?
Randy Johhnson, president of Independence Mortgage Company, and Keith Gumbinger, vice president of mortgage-education company HSH Associates, agree: Mortgage rates are likely to go up after March 31, 2010.The significance of this date is that this is when the Federal Reserve will stop buying mortgage-backed securities from Fannie Mae, Freddie Mac and Ginnie Mae.
The Fed started this buy-back program in January 2009, and by the end of the program the Fed will have bought $1.25 trillion dollars worth of these securities. The result is that mortgage rates have been kept low, but when the program ends, some, such as Johnson and Gumbinger, believe that mortgage rates are likely to increase.
As Anna Prior points out in a Wall Street Journal article, rate might not increase that much, but
A one-percentage point rise could add more than $150 to a monthly mortgage payment for a $250,000 30-year fixed-rate loan.
In addition, mortgage industry exec Johnson advised a homeowner whose mortgage rate is about to reset that the end of the buy-back program will
…increase the likelihood that rates will climb. If I were you, I would initiate a refinance right now. (Randy Johnson, “Is it time to refinance?” The Orange County Register, December 13, 2009)
As a mortgage industry exec, Johnson has an interest in advising for refinancing. But the end of the buy-back program and the effect this will have on interest rates is something to put into the mix when considering refinancing.
Note: An upcoming post will provide another viewpoint.