Bernanke: Lower Mortgage Limits Are a ‘Trade Off’
Federal Reserve Chairman Ben Bernanke discusses the phase out of higher conventional loan limits.
For those of you worried that the scheduled expiration of higher loan limits at Fannie Mae, Freddie Mac and the FHA will have a negative effect on the housing market by raising the cost of home ownership, you can be rest assured the chairman of the Federal Reserve is fine with it.
“As far as Fannie Mae and Freddie Mac are concerned, there is a tradeoff there between supporting the higher priced homes and weaning the housing finance system off of unusual limits it was put under during the crisis,” Ben Bernanke told a Congressional Committee on Wednesday.
There have been numerous and varied contentions about the future state of the mortgage market once loan limits drop from the maximum $729,750 to $625,500. The home builders think it will be catastrophic while some economists and academics say it will have little effect, especially at the FHA.
The bond market doesn’t seem to think the U.S. is really in danger of defaulting on its obligations, so rates should remain steady. If a jumbo rate is higher, even by a full percentage point, it’s still historically pretty low, and buyers looking at a higher-priced home likely expect to pay a higher interest rate already anyway.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) gained +40 basis points last week which helped to move mortgage rates lower from last Friday to the prior Friday. The gains were primarily due to some very strong ten year and thirty year U.S. Treasury auctions. Foreign investors continued to pour money into the U.S. due to concerns that several European countries could default on their sovereign debt. Speaking of defaults, our country coming up quickly to the August 2nd deadline. News and speculation on the final solution that our three branches of government agree to will have a major impact on rates.
What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises:
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