Mortgage Rates Fall as Fed Twists

Well the Fed has come out and announced policy that has sent our rates to all time lows. Operation twist as they say is something that involves the Fed selling short term debt to buy long term debt. This move does not increase their balance sheet so it is thought of as noninflationary (good for our markets) and of course the funds allocated to the longer term term bonds has essentially created a backstop that QE once provided our equities market. This "insurance" policy as some consider it means there is little risk to investing in long term bonds and mortgage backed securities. If the price falls, the Fed has already pledged to buy, so there is little downside risk.

This has lead the MBS markets to knew historic highs. While our previous note to watch was the 4.000 coupon, we are now watching the 3.5% coupon as benchmark, which simply indicates the low rate environment is going to be here for a while.

That's not to say you should hold off and wait for things to improve even further. Peaks and troughs.... what typically comes after a peak? The correct answer is trough, and considering we are peaking, what goes up must come down... timing is everything in this market, play the upside of a trend and pricing is typically better than a downtrend that happens to be slightly higher in market price... why... the lenders are hedging up or down and following the trend with their offered rates.

Yes, this is all very complicated, and is why it pays to have a responsible and well informed loan officer in your corner.