The Mortgage Porter

This morning the FOMC Minutes from last months meeting and it’s causing a stir in the bond markets. The minutes reveal some members of the Committee wanting to pull back on the purchasing of mortgage backed securities by the end of this year. Mortgage interest rates are based on MBS (bonds) and the indication of no longer having the Feds hand in keeping mortgage rates artificially low is causing the bond market to be slightly off this morning.

Here are some “minute bits” relating to mortgage interest rates that I found interesting:

“The staff also reported on potential risks to financial stability, including those associated with the current low interest rate environment. Some observers have suggested that a lengthy period of low long-term rates could encourage excessive risk-taking that could have adverse consequences for financial stability at some point in the future….

Participants generally saw conditions in the housing market as having improved further over the intermeeting period. Rising house prices were strengthening household balance sheets by raising wealth and by increasing the ability of some homeowners to refinance their mortgages at lower rates. Such a dynamic was seen as potentially leading to a virtuous cycle that could help support household spending and financial market conditions over time….

…most participants saw asset purchases as having a meaningful effect in easing financial conditions and so supporting economic growth. Some expressed the view that these effects had likely been stronger during the Federal Reserve’s initial large-scale asset purchases because that program also helped support market functioning during the financial crisis. Other participants, however, saw little evidence that the efficacy of asset purchases had declined over time, and a couple of these suggested that the effectiveness of purchases might even have increased more recently, as the easing of credit constraints allowed more borrowers to take advantage of lower interest rates….

Participants generally agreed that asset purchases also have potential costs and risks. In particular, participants pointed to possible risks to the stability of the financial system, the functioning of particular financial markets, the smooth withdrawal of monetary accommodation when it eventually becomes appropriate, and the Federal Reserve’s net income….

… to the extent that asset purchases push down longer-term interest rates, they potentially expose financial markets to a rapid rise in those rates in the future, which could impose significant losses on some investors and intermediaries….

Overall, most meeting participants thought the risks and costs of additional asset purchases remained manageable, but also that continued close attention to these issues was warranted. A few participants noted that curtailing the purchase program was the most direct way to mitigate the costs and risks….

Want more? You can read the minutes from the March FOMC meeting here.

What we do know is where mortgage interest rates are today… which is what I refer to as “artificially” low thanks to the Fed.  

It’s a limited opportunity for home owners to refinance and to create more cash flow (especially considering the increase in payroll tax) and to reduce the interest paid on their mortgage and for home buyers to secure a long term low mortgage rate on their next home.

If you are considering buying or refinancing a home located in Redmond, Renton, West Seattle or anywhere in Washington state, I’m happy to help you!