Fed Actions Could Lower Mortgage Rates

Washington, DC, March 19, 2009--U.S. mortgage rates could fall to the lowest in more than 60 years after the Federal Reserve said it will buy up to $300 billion of Treasuries and increase purchases of mortgage-backed bonds.

The rate on a 30-year fixed mortgage may fall to 4.5 percent, the lowest since the 1940s, Weiss Research said. In 1945, the average annual rate for a mortgage was 4.7 percent.

The firm said, “The Fed is kind of going all in.”

The Fed yesterday said it will buy up to an additional $750 billion of agency mortgage-backed securities to support home lending. That would increase its commitment to as much as $1.25 trillion.

The Fed is trying to lower rates by reducing the supply of outstanding mortgage bonds, boosting their prices and thus lowering their yields. That allows banks to reduce the rates on new mortgages and still ensure profitable sales of the securities.

The Fed announced a program in November to buy $500 billion of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. That helped to drive the rate down to 4.96 percent during the week ended Jan. 15, the lowest since Freddie Mac began keeping track in 1971.

However, lower mortgage rates by themselves also may not be enough to spark demand for home purchases.

For consumers who’ve lost their jobs or are worried about losing their jobs, low mortgage rates won’t be enough to prompt them to commit to buying a house, Weiss said.