As the Federal Government continues to scramble in search of a formula to stabilize the markets and restore confidence in the economy, Treasury Secretary Henry Paulson announced today that the government would be purchasing up to $600 billion in mortgage backed securities from Fannie Mae and Freddie Mac.
In response, interest rates on 30-year mortgages immediately fell by nearly 50 basis points, into the mid 5's. Those rates are the lowest I've seen in 14 years as a real estate broker.
For those who don't follow the mortgage markets closely, this announcement is in very interesting because the Treasury has basically shifted its policy away from buying debt (loans previously made) to buying mortgage-backed securities (loans to be made in the future).
In other words, the shift in thinking here is one that moves away from helping homeowners who are in foreclosure and instead focuses on helping future homebuyers (as well as those with enough equity to refinanace into a conventional mortgage).
Interesting, dramatic events.
The trick now is to see if the Treasure Department will actually FOLLOW THROUGH on this announcement, given the abrupt changes in policy and philosophy we have seen over the past 90 days.
Good news if you're a buyer or looking to refinance. But if the events of the past few months have taught us anything, it's that these rates won't be around for long. The best deals are only there for those willing to take action, and with the inventory of homes on the market already 20% below where it was one year ago, these lower rates only figure to spark more competition for foreclosures and well-priced entry level homes.