From the Fed: Mortgage Excerpts from December’s FOMC Minutes

If your little heart desires, you can read the entire FOMC Minutes from the December 15-16, 2009 meeting.  I'm posting bits and pieces that relate to mortgage interest rates, which have been artificially low due to the Fed's purchase of MBS (mortgage backed securities) and home buying/selling.

In particular, they noted the risk that improvements in the housing sector might be undercut next year as the Federal Reserve's purchases of MBS wind down, the homebuyer tax credits expire, and foreclosures and distress sales continue. Though the near-term outlook remains uncertain, participants generally thought the most likely outcome was that economic growth would gradually strengthen over the next two years as financial conditions improved further, leading to more-substantial increases in resource utilization….

In the residential real estate sector, home sales and construction had risen relative to the very low levels reported in the spring; moreover, house prices appeared to be stabilizing and in some areas had reportedly moved higher. Generally, the outlook was for gains in housing activity to continue. However, some participants still viewed the improved outlook as quite tentative and again pointed to potential sources of softness, including the termination next year of the temporary tax credits for homebuyers and the downward pressure that further increases in foreclosures could put on house prices. Moreover, mortgage markets could come under pressure as the Federal Reserve's agency MBS purchases wind down….

Accordingly, the Committee affirmed its intention to purchase $1.25 trillion of agency MBS and about $175 billion of agency debt by the end of the first quarter of 2010 and to gradually slow the pace of these purchases to promote a smooth transition in markets. The Committee emphasized that it would continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.  A few members noted that resource slack was expected to diminish only slowly and observed that it might become desirable at some point in the future to provide more policy stimulus by expanding the planned scale of the Committee's large-scale asset purchases and continuing them beyond the first quarter, especially if the outlook for economic growth were to weaken or if mortgage market functioning were to deteriorate….

Bernanke has stated that there is a lot of uncertainty of what the effect of the Fed no longer purchasing MBS will be and that the FOMC will continue to watch the economy and decide if they'll actually be done with their purchase program in March or if they're going to continue. 

What we do know is where mortgage rates for the Seattle/Bellevue area are currently and what options with mortgage programs are available now (HUD has been talking about tightening up FHA this month).  I've been talking to clients who I encouraged to refi a few months ago when rates where slightly lower and FHA still had an attractive streamline (with no appraisal required and closing costs financed)–rates are higher and benefits to that program are gone.  For refinancing, it may not pay to be patient.

March should be interesting with the end of the home buying tax credit looming and the FOMC nearly phased out of their support of our artificial low mortgage rates.  

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