In a recent conversation with our friend Ryan Luechtefeld we asked if would be kind enough to shed some light on just what the government is doing in relation to the mortgage industry. We get many calls regarding this and thought it might be better coming straight from the source. If you have any questions do not hesitate to contact him directly at the number below.
The US Government has decided to pump very large amounts of money into our economy. This trend started in 2008 and has continued into 2009. The reason that I mention it here is because it has had a very direct impact on long-term mortgage rates. Long-term mortgage rates are basically dictated by the value of a Mortgage Backed Security. These Mortgage Backed Securities are securities that are backed by the principal and interest payment of a set of mortgage loans. When their value is up, mortgage interest rates go down. The value of any security is the result of how many people are attempting to purchase the security compared to how many people are attempting to sell it. It is simple supply and demand. What has happened over the last month is that the US Government has decided to purchase 500 billion dollars of Mortgage Backed Securities. This added demand has put an upward pressure on their value and mortgage interest rates have come down as a result. Again, this is simple supply and demand. Our expectation is that the government will continue to add value to Mortgage Backed Securities through the first quarter of 2009. We then expect that they will then slowly pull back on their buying during the 2nd quarter until the 500 billion dollars is spent. What this means is that the low rates should continue for much of the first half of this year.
Ryan Luechtefeld
Midwest Mortgage Capital
Phone: 618-624-0066
