In an effort to stimulate the market and the mortgage industry, the Federal Reserve recently announced a potential $500 billion liquidity infusion into the mortgage and consumer credit markets.It is important to understand that currently this only a plan to increase both investor and consumer confidence. The goal is alleviate existing home inventory volumes by reducing the relative interest rate to re-encourage home purchases nationwide and establish an implicit floor to home value declines.Under the proposed plan, the Federal Reserve would offer to buy securities, backed by the Government, from lending institutions in hopes of driving mortgage rates down to as low as 4.5?
I've been getting a lot questions of when the Federal Reserve reduces interest rates how that affects mortgage rates and when the Federal Reserve is going to go through with this plan. Here is some answers:
How much of the proposed $500 billion plan has the Federal Reserve purchased?
To date, the Federal Reserve has purchased approximately $5 billion towards the $500 billion plan.
If the Federal Reserve lowers rates again, how will mortgage rates change?
This is a common misconception. Whenever interest rates drop people think the mortgage rates go down as well. Mortgage rates are not driven and set by the Federal Government. Investors and the relationship between supply and demand impact mortgage pricing. However, current efforts like the Federal Reserve liquidity infusion may influence investor appetites for mortgage products in the near future.
What else impacts mortgages rates?
Pricing is influences by a complex risk assessment including potential for prepayment, intrinsic product risk, risk of default, property location, borrowers past credit history, current financial stability, etc. All of these factors directly contribute to the borrowers stated rate.
When will it be determined if the Federal Reserve will go forward with this plan?
The assessment period and overall design for the Federal Reserve Program will continue into early 2009. Today, the program remains in its early development stage with many specifics to be decided.
[This post is written and copyrighted by Financial Elite (http://financialelite.blogspot.com/ ).]
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