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Federal Reserve Injects $200 Billion of Liquidity into Market - New Conforming Limits Being Honored
March 11th, 2008 categories: Real Estate Finance, Real Estate News
It has been a wild ride for Mortgage Bonds lately. Today, the Fed announced a new lending instrument for banks, one that allows for Mortgage Backed Securities to be used as collateral, in an effort to infuse the tight credit markets with $200 billion dollars of liquidity.
This infusion of liquidity may well translate into lower mortgage rates in the next few days and weeks. Although the Feds have significantly dropped both the Feds Fund Rate and the Discount Rate several times, mortgage rates have ticked up since January.
The fear of inflation eroding our dollar has made investors hesitant to invest on long term investments (i.e. 30 year mortgages). The secondary market has also been pricing in a margin of 200 bp above the Fed’s interest rate to try and regain losses from bad mortgage debt and protect against future losses.
Many analysts feel another .5% rate cut may come next Tuesday from the Feds. It can take up to 6 months for the Feds actions to be seen in the market. They dropped both the Feds Funds Rate and the Discount Rate .5% in September of last year–just about six months ago. With 6 months seasoning and with $200 billion of extra liquidity in the market, now we should finally see interest rates come down noticeably in response to the Fed’s actions.
Also on a positive note, the new conforming limits were announced late last Wednesday. The new guidelines are now set to be implemented into Fannie Mae/Freddie Mac by April 7; however, the first of my lenders announced today that they are accepting new loan applications and interest rate locks on the new expanded limits. It is likely that many lenders will follow suit over the next few weeks.
Loans at the new limits will need to be manually underwritten until the electronic systems are upgraded but this is an incredible opportunity for those who have been waiting for the new limits to jump in and get their loan approved quickly and lock in their interest rate. As part of the increased conforming limits, Fannie Mae and Freddie Mac are tightening some of their guidelines. Loans submitted and locked prior to April 7 will be underwritten with the current guidelines.
The market is still very volatile but it can offer a wonderful opportunity to lock in a low fixed rate soon before lending guidelines tighten any more. Talk to your mortgage professional to analyze your situation. A good mortgage professional understands the market and tracks interest rates daily to ensure that you lock on the right day.
Please feel free to call or e-mail me any time.
Lysa Catlin
CMC Finance, Inc.
(858) 456-3000
