Fed Tries to Drive Mortgage Rates Down

The Federal Reserve is trying to make it easier to borrow money, especially for housing. On Wednesday, the Fed announced it is buying an additional $750 billion in mortgage-backed securities, bringing the total to $1.25 trillion this year. The Fed is essentially printing more money and injecting it into the economy with the hope of lowering mortgage interest rates.
The Fed is also increasing the purchases of Fannie Mae and Freddie Mac debt this year by up to $100 billion for a total of up to $200 billion in debt.
The markets reacted quickly. Prices on Treasury debt shot up and the 30-year fixed-rate mortgage for credit-worthy borrowers fell as low as 4.75%.
Plus, the Fed also said the rate banks charge each other for overnight lending — the federal funds rate — will remain in a range of zero percent to 0.25 percent for a long time, helping to keep interest rates low.
Mortgage applications were already up with rates hovering in the 5% range. On Wednesday, the Mortgage Bankers Association said Wednesday its weekly application index climbed 21.2% for the week ended March 13.
The Fed’s goal is “to provide greater support to mortgage lending and housing markets,” the Fed said in a press release after meeting for two days.
The move, along with a $8000 first time buyer tax credit and higher conforming loan limits, are aimed at getting potential buyers off the fence. That is already happening in some areas. In the Northern Virginia area, sales were up 39% in January and 16% in February while supply is down 20% in February, compared to a year ago.

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