Tags: Fed | Exit | Mortgages | Rate | Hike

Experts: Fed Exit from Mortgages Won't Spark Rate Hike

By    |   Tuesday, 23 Mar 2010 01:17 PM

When the Federal Reserve first announced that its $1.25 trillion purchase of mortgage securities would end March 31, fears abounded of a surge in mortgage rates.

That fear has quickly subsided, as experts see strong enough demand from other investors to buoy the mortgage market once the Fed pulls back.

The 30-year fixed mortgage rate currently stands at about 5 percent.

"I don't think we'll see a major reaction and probably not a big spike higher in rates, even though the market is losing one of its major actors," Kim Rupert, managing director of global fixed income analysis for Action Economics, told CNBC.

"So we're going to have to find some other sources of demand. The market's pretty ingenious, and it can fill that hole without serious consequences."

It helps that the Fed gave the market plenty of notice.

"By and large the end of the purchasing program is priced in," Zach Pandl, an economist at Nomura Securities, told CNBC.

"The Fed has signaled in its public comments that it is willing to bring the mortgage purchase program back if the economy disappoints. That limits the extent to which mortgage rates are going to rise."

To be sure, the end of the Fed’s purchases represents a form of credit tightening, Pimco CEO Mohamed El-Erian told Reuters.

He says the most recent Fed policy statement essentially “met market expectations.”

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When the Federal Reserve first announced that its $1.25 trillion purchase of mortgage securities would end March 31, fears abounded of a surge in mortgage rates. That fear has quickly subsided, as experts see strong enough demand from other investors to buoy the mortgage...
Fed,Exit,Mortgages,Rate,Hike
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2010-17-23
Tuesday, 23 Mar 2010 01:17 PM
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