I wanted to discuss the impact of the feds announcement of QE3 or quantitative easing three. In mid‑September, they announced that they were going to start their new round of quantitative easing by actually buying, specifically, mortgage‑backed securities to the tune of 40 billion per month. It’s just an incredible proposition on their point and it does have specific purposes. What has been the impact of this on mortgage rates? Specifically Arizona mortgage rates. Well, I can tell you rates have improved. They haven’t dropped dramatically as you might think, but they’ve improved. By this I mean that in, maybe, the past couple of months I’ve been talking about doing a no closing cost loan, making some assumptions about the loan size and quality credit of doing a no closing cost at about 3.5 percent.
Now, I would say that same loan with no closing cost on a 30‑year fixed can be at 3.375. So that’s a very positive impact on a 15‑year, before I might have been talking 2.875, maybe 3. Now, I’m talking 2.75, no closing cost on that type loan.
Now, again, there’re criteria that surround that. So that’s real improvement, but it doesn’t drop rates, as you think of them, dramatically in terms of a huge rate drop.
So with that being said, what will be the longer‑term impact? Will rates get even lower as a result of this quantitative easing? My own opinion is I don’t think that they will get much lower. I have a couple of reasons for that thinking.
Number one, we’re already near the historic lows that we have been. It’s hard to see them going much lower than where they are, particularly to provide the secondary market investors the return on their investments they need.
But maybe more importantly, the quantitative easing in terms of mortgage rate is going to be offset in the very near future by an action that Fannie and Freddie have taken. That’s with what’s called their g‑fee, or guarantee fee. It is actually being applied. Some lenders have already done it. Others are implementing this increased guarantee fee, building it into their rates.
Actually, we just had one of our key lenders increase their rate starting November 9th by 60 basis points, which is very huge. The value of what the quantitative easing has done and will be doing is going to be offset.
This means that rates are going to stay probably in the area, and I think that’s probably the biggest factor or important impact of the quantitative easing. It’s going to bring stability to the mortgage market and interest rates for the foreseeable future. By that I mean for the next year or two rates are going to stay in this general area.
That’s a very good fact for all of us to deal with, particularly if you’re looking at refinancing. Beginning particularly in Arizona, we’re starting to get appreciation again. More people will be able to get into the marketplace with real equity and be able to do some refinancing if they haven’t been able to.
This will also impact ARMS, adjustable rate mortgages, keeping them low as well for the foreseeable future. Although they work off the Libor, a little bit different guideline that’s being used, but it will have much the same impact.
What’s the impact of the quantitative easing net summary? That is rates have come down, they have improved somewhat and we are at the historic lows. I think the most important factor is it will provide stability in pricing for the foreseeable future.
If you have any questions or would like more information about this or for an Arizona mortgage loan rate quote, give me a call at the office at 480‑503‑3533.