Higher Mortgage Rates Possible

Economist believe mortgage rates will increase, predicting the average 30 year rate will move closer to 5.75% over the next six months.  Such forecasts force homeowners with adjustable rate mortgages to consider refinancing their loans to avoid an increase in their monthly payments.  An increase that few are prepared to handle when we consider the current unemployment rate now at 9.7%.

The possibility for homeowners currently in ARM loans to refinance is now more difficult than ever.  The assistance homeowners needed, like principle forgiveness, has never materialized.  This has left many homeowners with very few answers to the problems they now face.

A threat economist point to for the increased rate prediction is the decision by the Federal Reserve to end the purchasing of mortgage-backed securities by the end of March.  During 2009 the Federal Reserve purchased $1.3 trillion in securities, mortgage-backed securities accounted for two-thirds of that total.  Dana Johnson, a chief economist for Comerica says, “It seems almost inevitable there will be some upward pressure on interest rates when the Federal Reserve stops buying (MBS)”.

The Fed began buying mortgage-backed securities a year ago to help deal with the financial crisis. In the short term this decision supported the mortgage market and kept rates low.  Now when we consider the feds decision to end the MBS purchases, we are uncertain how the purchases will effect mortgage rates and the housing market.  Some economist believe the Federal Reserve will need to back off of their promise to end these purchases.  The Federal Reserve may be in the unenviable position of spending money they do not have in order to avoid another financial crisis.

To date 4 million first-mortgage loans are now either in the foreclosure process or more than 90 days delinquent, initiating the process.

Related posts:

1. 30 Year Mortgage Rates Fall Below 5%
2. Federal Reserve Move Lowers Mortgage Rates Below 5%
3. Mortgage Rates Jump
4. Mortgage Rates Rise as Foreclosures Increase
5. Fed Purchases Of Mortgage Backed Securities To End

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