Sunrise, sunset

Well, here we are at the end of the 1st quarter of 2010. How are those resolutions coming along?

Yeah, I don’t remember mine either.

However, in my world of mortgage finance, this is a pretty crucial time. Starting in 2009, the Federal Reserve was kind enough to step into the bond market and purchase $1.25 trillion in mortgage-backed securities. What did that accomplish aside from adding one-and-a-quarter-trillion on the national debt?

Allow me to educate you.

Mortgage-backed securities are basically bonds that are backed by immense pools of mortgages. Indi­viduals and institutions can invest in these, just like investing in municipal bonds, treasury bonds, etc. If demand goes up for the bonds, the bond issuers can offer lower rates of interest. If demand goes down for bonds, the issuers need to jack up the interest rate in order to ‘sweeten the deal’ and get new investors to buy them up.

As these bond interest rates move up and down, the interest rates offered on the mortgages that will eventually back them up move up and down in lock step. So, Uncle Sam basically dropped a chunk of change to make sure that the mortgage interest rates that handsome brokers like me can offer to you got low and stayed low in an attempt to convince you guys that buying a house is a good idea.

Now that program has ended. So, we removed a huge source of demand from the market. As you can guess, many believe that interest rates have nowhere to go but up. I would tend to agree. But it’s not going to happen all at once. Over the spring and summer we will see a slow but steady march from the low 5’s on a 30 year fixed to the mid to high 5’s.

Combine that with the expiration of the homebuyer tax credit ($8000 for 1st-timers, $6500 for move-uppers) happening on April 30th (the deadline to have a signed contract by) and it’s safe to say that we’re seeing on of the most advantageous times to purchase a home slowly slip through our fingers.

Many are out there flapping their gums about extensions to the programs and new supplementary pro­grams to come in and replace the old ones. I wouldn’t be surprised if this proved to be true, but I cer­tainly wouldn’t count on it. Political pressures to reel in spending and to focus on other issues have become immense. That isn’t to say the good times are completely over. Just the good-er times.

Sunrise, sunset, I suppose.