Federal Reserve Tapering Announcement - What You Need To Know About It - Angel Oak Home Loans
The Federal Reserve held a pivotal meeting in early November regarding their plan to begin reducing purchases of Treasury bonds and Agency mortgage backed securities. The Federal Reserve currently buys $80 billion worth of Treasury and $40 billion worth of mortgage backed securities each month to add liquidity and keep the economy healthy. This is the largest asset purchase in Fed history due to the severity of the pandemic induced recession. Michael Chabot discusses how they will start tapering these purchases and how it affects interest rates, homebuyers, Realtors, and the mortgage industry as a whole. This information is important to understand and Michael breaks it down for you. Watch now!
Welcome to Your Mortgage Matters brought to you by Angel Oak Home Loans, your weekly look into what’s new in the mortgage business and how it impacts you. And now your host, Michael Chabot.
Hey guys, welcome back to another episode of Your Mortgage Matters brought to you by Angel Oak Home Loans. I’m your host, Michael Chabot. Today is a little bit different. This is a solo episode. I’m talking about the Fed announcement that came out on November 3, about the tapering. And, you know, let’s take a pause here. Before I get into it. I have a lot of notes on this. I just want to say as you all know, we’re coming off of the historically the lowest interest rates I think we’ve ever seen in the mortgage industry. And I want to talk about what this means, what the Fed has been doing, what they’re doing moving forward. And hopefully in the coming episodes, we’re going to have an economist come on and talk about what all these things happening out there are going to mean to interest rates and for you and buying a home. So bear with me, I’ve got a lot of information, and I would prefer to read it, then try to remember it off the top of my head. So again, the Federal Reserve held a pivotal meeting November 3, regarding their plan to start tapering as US inflation persists. For months, there was a word excuse me, there was word of the Feds debating on reducing the $120 billion asset purchase program and the monetary stimulus that is been providing the economy. So again, when the pandemic hit, the Fed came together and decided to start a purchasing program to help keep interest rates low or drive interest rates lower so that we keep the economy moving during the pandemic. So the Federal Reserve currently buys $80 billion worth of Treasury and $40 billion worth of mortgage backed securities each month to add liquidity and keep the economy healthy. This is the largest asset purchase in fed history, due to the severity of the pandemic induced recession, which is what I just mentioned there a minute ago. The announcement today includes the Feds plan to begin reducing purchases by paring down treasury bonds by 10 billion and agency mortgage backed security purchases by 5 billion each month starting later this month. They did say they would in their words, adjust the pace of purchases, if warranted by changes in the economic outlook. They announced that they excuse me intend to hold federal funds rates near zero until 2023 or late 2022. At the earliest. Exactly when rate hikes will happen is not known but they are keeping an eye on how persistent inflation will be in the near future data and decisions will be adjusted based on what they see. Okay, a couple things real quick. The the overnight lending rate or the federal funds rate does not have a direct impact on mortgage rates. Ultimately, it does but it really has more of an impact on student loans, credit cards, what banks charge each other to lend money. And we’ll get so much more into that when we have our economist on the show here in the in the coming episodes which I am super excited for that one. Alright, so what does all this mean? weaning the economy off of the accommodations from the pandemic COVID 19 crisis they cut interest rates and purchased government backed debt. Now, they may eventually increase rates and decrease how many bonds they buy a policy known as taper taper is a post crisis asset purchase plan where the Fed starts to slowly and gradually decrease how many assets it buys each month. Again, the Fed currently buys $80 billion worth of Treasury and $40 billion worth of mortgage backed securities each month, the Fed will still buy assets, just a at a lower amount. Reducing the amount of mortgage backed securities could result in higher mortgage rates. And I’ll stop there for a minute and say that we’re already seeing rates start to tick upwards. The reasons a recovering economy and soaring inflation. And I would imagine at this point, if you’re not hearing about soaring inflation, you’ve been out in the wilderness hiding somewhere. Alright, let’s talk about how it can impact you whether you’re a consumer, whether you’re a realtor, another loan officer, a builder, etc. Potential volatility in the stock market with the federal fund rate remaining low could be a good time to buy stocks, talk to a financial advisor about what this means for your portfolio. Mortgage rates could go up which we are starting to see already. Although rates are still good lenders are are still offering low rates, which might offset with higher fees. And you have to make sure in today’s market, if you want to see and get a low rate most likely you’re going to have to pay points but again, it all depends on your situation. Everybody’s individual and you need to talk to a mortgage advisor who is An expert in their field.
Important. This does not mean you have to wait to buy a home, work with a lender to get a rate that suits your budget and goals rather than wait, wait for rates to go down again, because we might not see that. Or if it is, it might not be for a very long time. They also made it very clear that no one needs to panic. They’re closely watching the market and adjusting appropriately. We’re also watching and we’ll report back to you what we know and what affects you in the mortgage industry. And again, as I said, I’ll have more information on this inflation margin compression, you know, everything that we’re seeing in the market and how it’s going to affect you. So keep tuning in, stay in the know. And of course your finance, natural health is our priority. And just wanted to bring this to you. It was too much to memorize. I wanted to read it to you to make sure you got all the facts, all the knowledge again, don’t panic. But understand this rare interest rates for mortgages are starting to push up. That means as they go higher affordability gets affected. So make sure you’re working with a mortgage professional, somebody who knows the market who can advise you and guide you, etc. So again, I’m your host Michael Chabot. This is Your Mortgage Matters brought to you by Angel Oak Home Loans. Stay tuned for some more episodes in the very near future.
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