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Mortgage Rates Could Slip Below 3% As Fed Continue Buying Low-Coupon Bonds

Navi Persaud
May 13, 2020
Newspaper article about rates. Credit: iStock.com/mattabbe

As the Federal Reserve continues to purchase low-coupon bonds to stimulate the U.S. economy, mortgage rates under 3% could be more of a reality. Lenders could potentially sell mortgage loans below 3% following the Federal Reserve Bank of New York's purchase of contracts for $240 million of mortgage bonds with a 2% coupon, according to a Bloomberg report via Yahoo Finance.
 
"And the Fed isn’t finished with the low-coupon securities. The central bank has said it will buy more this week as part of $20 billion in planned securities purchases, virtually guaranteeing a buyer for recent 30-year mortgages with rates as low as about 2.5%," according to the report.
 
The report revealed that some lenders still aren't willing to lend below 3% given the current climate of unemployment. Additionally government action does not force lenders to change their rates.
 
"Lenders sell most of the home loans they originate, and the bulk of those end up in securities issued by government-owned mortgage giants Fannie Mae and Freddie Mac," according to the report. "The securities typically offer yields around 50 to 100 basis points lower than what borrowers pay on their 30-year mortgages, taking into account various fees. That means a bond offering 2% typically will contain loans to households paying 2.5% to 3%."
 
Click here to learn more about the potential for mortgage rates below 3%.

 
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