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.  

I'm just reading through the Fed's press release which announces that they are leaving the Fed Funds rate unchanged at 0-0.25%.  Good news for those of you with variable rates on your home equity loans–your rate is not going up…yet.

From today's FOMC Statement:

Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.

The Fed's statement is fairly positive and good news for the economy means that investors will trade the safety of bonds (such as mortgage backed securities) for stocks; causing mortgage rates to trend higher.  In addition, the Fed reiterated they will be phasing keeping mortgage rates at artificial low rates by March 2010.

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010.

The next big market mover that tends to dramatically impact mortgage rates is the Jobs Report.  Watch for it this Friday morning.

To the average American home owner with a home equity line of credit, the Fed leaving the Funds Rate at a target range of 0-0.25% means that they can enjoy their low rate on their HELOC for the time being.  Once they begin to adjust the Funds Rate upward, HELOCs which are most often attached to the Prime Rate, will rise as well.

Today's Press Release from the FOMC states:

"Conditions in financial markets improved further in recent weeks.  Household spending has continued to show signs of stabilization but remains constrained  by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit…."

The Fed reiterated their commitment to "employ all available tools to promote economic recovery" and to the purchase of mortgage backed securities and treasury securities:

"…to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October…."

I take this last line to mean that we are not going to see the 4.5% conforming rates that were manipulated earlier this year to the artificial lows.  It would take other forces outside the Fed to see rates dip that low again.  Only time will tell.

The FOMC slashed the Funds Rate by 0.5% to 1.5%.  This is an "emergency" cut and coordinated globally.

If you’re a long time Mortgage Porter subscriber, then you all ready know that the Funds Rate does not directly change mortgage interest rates.  However Fed rate cuts do influence mortgage interest rates, depending on how traders react to the cut.  Remember, mortgage interest rates are based on mortgage backed securities (bonds) and bonds tend to react negatively to inflation.  Often times, mortgage interest rates will increase after the Fed cuts rates as it’s viewed as a move against inflation.

This rate cut is different in that it was done global effort which should hopefully keep our currencies, oil and inflation in check.  The markets remain very volatile.  It’s not even 8:30 am and we’ve all ready seen the DOW open down then pop up 150 and back down to a loss of 150.

The FOMC’s next scheduled meeting (where another rate adjustment is possible) is October 29, 2008.

If you’re interested in seeing the rates I’m quoting live, click here.  Presently, mortgage rates are pretty much unchanged by these events.

If you’re waiting to refinance your property in Washington State, I invite you to complete my on-line loan application so that we can be ready to lock should rates dip to point where it make sense.  Rates move quite quickly in this market!