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Hello my name is Taylor Lapidus with The Precision Team of Keller Williams Arizona Realty.
thank you very much for taking the time to watch our blog
today we're talking about
the Federal Reserve
and how they are
done buying mortgage backed securities. For the last fifteen months, they've been pouring cash,
roughly 1.25 trillion
dollars,
into
the purchase of mortgage
backed securities
when lenders
write loans, mortgages and
deeds of trust,
they give the money to the home owner who then buys
the home, using the home as a secured asset against that loan
the lender
Was taking that loan and combining it with many other loans into what are called mortgage
backed securities
they were then selling these packages of loans
on the open market to private investors
people from China, people from
America, all the different people were sinking money into the banks to buy these loans thereby
allowing the banks to take that money
and loan it to someone else and it would create a cycle
well when the
housing crisis hit, the
credit crunch happened and what was happening was that the banks were not able to sell
these mortgage backed securities; there were no more buyers. Everyone looked at them as too toxic.
so they had to sit on these notes which means that they were not receiving more cash
and they therefore could not
give more cash out in the form of loans
and everything it basically came to a screeching halt.
The Fed came in and said, “well look we’ll buy these toxic assets, we’ll become the buyers because
there is no one in the private sector
and we’ll start purchasing.”
They dumped in the $1.25 trillion Dollars over the last
Fifteen months
allowing the bank have more liquidity
and start lending again.
Well as of
March 31st, 2010
they are done; they are not buying anymore.
So, what effect is this going to have on the housing market?
Well, directly
it looks like it is going to effect
the rate that people are able to get
on a mortgage.
The thirty-year fixed-rate has been hovering at or below 5%.
That's a very low rate.
When you look back at the 80’s,
in the 1980’s, when rates were
double digits
you can see that there's a large discrepancy.
With rates low
this incentivizes a lot of people to get into the market because you have
more purchase power with lower rates
and start buying homes
this is part of what was helping bring sales
to
the housing market.
There’s a gluttony
of sellers on the market trying to sell this will help bring buyers into the game
Supply and demand.
Trying to get more
demand for the abundant supply that was out there.
So with the Fed not buying these mortgage backed securities anymore, the question is,
is the market healthy enough now
for private investors
to start jumping in.
Some people don’t think so. Some people think that Fannie Mae and Freddie Mac are going to have to step in
and start buying up
the difference that the Fed is not doing anymore.
Now Fannie and Freddie just announced in February
that they were going to be buying roughly two hundred billion dollars
in delinquent debt.
That’s going to kind of help cover this gap givning us some breathing room.
So it will be hard to say exactly what the effect will be
of the Fed dropping out at the end of March, which was the plan all along,
and
combine that with the fact that the
tax credits are coming to an end
after
April 30th
really at the end of June
when those have to close by.
so it will be interesting to see what happens to rates, what happens to the market.
keep your eye on it. What do you think
of the Fed dropping out?
Some people think
“They’ve done too much.
It’s taxpayer money. This is a private problem it should really be handled by the private sector.” Other
people think that they haven’t done enough.
What do you think?
Where do you fall in this debate?
My name is Taylor Lapidus. We are The Precision Team. We would love to hear from you.
Leave a comment below.
Send us an email at MyOpinon@ThePrecisionTeam.com
and have a fantastic day.