What's going on with mortgage rates? The fallout from QE2

I received the following in an email over the weekend and thought it was a great piece to share.

Everyone is wondering why mortgage rates have risen in the wake of the Fed's recent, and much publicized, second round of Quantitative Easing (QE2). Enjoy this complimentary analysis as we dig deeper to explain why rates have reacted as they have. Then, feel free to forward it to your clients and referral sources to help them understand what's really causing rates to move. Show them you are the expert they can trust. With our compliments, MBSQuoteline.

What's Going On With Mortgage Rates?
The Fallout From QE2
After reaching the lowest levels in decades, mortgage rates have shot higher over the past two weeks. There is not a simple explanation for why this happened, but looking at the many factors which are influencing mortgage rates right now will help to understand what's going on. In short, when investors look ahead, they see few reasons for mortgage rates to move lower and many possible causes for them to move higher. The major negatives include stronger than expected economic growth, domestic and foreign opposition to quantitative easing, and concerns about lower foreign demand for US securities.

Beginning in late August, the Fed hinted that they would initiate a new stimulus program to purchase Treasury securities, which is known as quantitative easing. In the short-term, the Fed buying increases demand for bonds, including mortgage-backed securities (MBS). In anticipation of this added demand, investors purchased MBS, which pushed mortgage rates lower. The announcement of the details on November 3, $600 billion through the middle of 2011, was close to expectations.

A couple of days later, mortgage rates begin to move higher for a variety of reasons. Stronger than expected economic data caused investors to raise their outlook for economic growth. Stronger growth decreases the need for additional Fed stimulus, and it generally leads to higher inflation. In addition, there was substantial opposition to the quantitative easing program from other countries and from many US politicians and economists, meaning that the Fed will face strong resistance to an expansion of the program. Investors had viewed the $600 billion figure as a first step which would likely be increased in the future. Stronger economic growth and opposition to quantitative easing reduce the likelihood that the program will be increased and possibly could cause the program to end early. In short, the expected level of added demand from the Fed decreased.

The quantitative easing program pumps dollars into the economy, and the increased supply weakens the value of the dollar relative to other currencies. When foreign investors sell US securities, they must convert the US dollars they receive into their own currency. If the value of the dollar falls, then the value of their US investment falls in relative terms to their own currency. As a result, foreign investors may reduce their purchases of US securities, including mortgage-backed securities (MBS), which would cause yields to increase. This fear of weaker foreign demand hurt mortgage rates.

China's announcement of a rate hike was another negative for US mortgage rates. Yields must rise in other markets to compete with higher yields in Chinese markets. Renewed financial troubles in Ireland and other smaller European countries helped US mortgage rates a little over the past week, but those concerns have mostly passed.

The recent news has not been uniformly negative for mortgage rates. Current inflation levels remain extremely low. In fact, the Consumer Price Index data released this week showed that annual core inflation dropped to a record low in October.

Bottom line, though, when mortgage rates reached such extremely low levels, it left them in a position to reverse direction very quickly.

Wisconsin mortgage interest rates and timing the market

Wisconsin mortgage interest rates have gone up the last couple days. Mortgage bonds really got quite a bit worse the last couple days and have been trending lower for the past week. For those of you who have been sitting on the fence waiting to time the market for the absolute lowest interest rate, I think you missed it. That was last week.

Interest rates are still very low and it's still a great time to purchase or refinance your mortgage. In order for the economy to recover rates can not remain this low and will need to rise.

Jobs report was very good this month bad for Wisconsin mortgage interest rates.

Jobs report was released with expectations of 60,000 new jobs being created. The number came in at 151,000 new jobs created. This is great news for the economy and those who are unemployed. The bad news is as a result mortgage bonds are trading quite a bit lower on the news and interest rates are starting to rise. Wisconsin mortgage interest rates are still trading at historically low levels.

What to do while your Wisconsin Mortgage refinance is being processed

With Wisconsin mortgage interest rates at historically low levels more and more people are taking advantage of this and refinancing. After you've decided to refinance and lock in that new low rate there are a few things to do and do not do while your loan is in processing.

1. Do not apply for any credit. On the day of closing we will repull a credit bureau. Any new recent inquiries we will need a letter of explanation for and if any new credit was established we will need a statement from the creditor and include that minimum payment in your debt to income ratio. This additional payment may make you ineligible for a refinance.


2. Continue to make your minimum monthly payments that are due on all accounts until your loan funds. Your loan will fund on the 4th business day after closing occurs.

3. If you have electronic funds transfer call your local bank to have that stopped. Depending on your bank this can take 10-14 business days.

4. Do not quit your job or give a 2 weeks notice. Our funding department will call your employer day of closing to verify you are employed.

If you have any questions please give me a call at (920) 788-9608 or I can be reached via email at rmeyer@gsf-mortgage.com.