Early April Fools from the Fed

Many folks, myself included, thought the Fed's announcement to buy Mortgage Bonds and Treasuries would cause interest rates to drop. Well that didn't happen. Want to know why? Mortgage expert Rich Paravella with Equity Services (rparavella@equitysrvs.com) offers some insight:

"There was a large announcement yesterday that the Fed was stepping in to purchase Agency bonds. This was to bring interest rates down to the lowest rates ever - Oops - Didn't happen. Below is article explaining why. If you read no further, remember this: Don't always believe what you hear. Email me for a real world explanation or status of the mortgage environment.

"Big news hitting the wires yesterday afternoon, as the Fed made a blockbuster announcement that sent Mortgage Bonds into rally mode. The Federal Reserve announced that over the course of 2009, they will purchase an additional $750B of Mortgage Backed Securities in an effort to help shore up the housing market and keep home loan rates low. On the announcement, Mortgage Bonds exploded higher, leaving prices within whiskers of the best levels ever.

However, as we stated in yesterday's Alert to Float: Their actions may keep a lid on rates, but not necessarily push them dramatically lower. And due to the issue we've also discussed of lenders still working at max capacity, they are very likely not going to pass all the gains through to our rate sheets, as we are already hearing this morning. The good news is that perhaps this will help lenders feel more comfortable staffing up a bit, as this purchase program will certainly keep rates from moving significantly higher any time soon - and this will also give time for the new 105% refinance plan to work as well. Bottom line - although the media is already spinning it differently, this is still not a time for clients to stay on the fence, hoping and waiting for lower rates. Home loan rates remain within inches of all-time historic lows, but may not necessarily move significantly lower based on this purchasing plan - waiting is a very risky move.""