Mortgages to Stay at Historic Lows

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Recent FHA Loan Volume Weak, But Applications Strong

Two federal agencies released reports during the week of March 21, 2011 that suggest mortgage rates will remain at their historic lows for the near term.

Treasury Dept. to Sell its Mortgage Backed Securities

In 2008 and 2009, the Treasury acquired $142 billion of agency-guaranteed mortgage-backed securities (MBS) to prop-up the staggering mortgage market. Since then, the market for agency-guaranteed MBS has improved, and the Treasury expects to make a profit on the sales of these securities. It expects to sell up to Treasury plans to sell up to $10 billion of securities per month, consisting primarily of 30-year fixed-rate MBS that are guaranteed by either Fannie Mae or Freddie Mac.

"We're continuing to wind down the emergency programs that were put in place in 2008 and 2009 to help restore market stability, and the sale of these securities is consistent with that effort," said Mary J. Miller, assistant secretary for Financial Markets. "We will exit this investment at a gradual and orderly pace to maximize the recovery of taxpayer dollars and help protect the process of repair of the housing finance market."

The Treasury's holding of $142 billion in MBS, which large, pales in comparison to the $1.25 trillion in MBS purchased by the Federal Reserve at the same time. The Federal Reserve is setting some of its debt, but retains $950 billion in MBS.

Analysts suggest these sales will have a slight upward pressure on mortgage rates as liquidity in the mortgage market decreases slightly.

Recent FHA Loan Volume Weak, Applications Strong

The FHA announced mortgage bankers originated $16.8 billion of Federal Housing Administration-backed loans in February, a 27% decline from January. However, the number of applications rose 9.8%

The FHA the number of applications would have been greater, but for bad weather in January. The increase in the number of applications coupled with the decrease in the amount originated (endorsed by the FHA) may signal more applicants entering the market but borrowing smaller amounts.

Exactly 80% of FHA borrowers in February were first-time home buyers, 30% were minorities, and the average FICO score was 703, which is up from the 2010 average of 697.

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