Every time Fannie Mae and Freddie Mac “buy” a loan they have to sell it. Why? They’re not banks and don’t have unlimited money. Who do they sell their loans to? Insurance companies, pension funds, mutual funds, foreign countries… you and me.

But they then ask “How do they buy them?” I tell them that they package them up in nice bundles and sell them as securities on Wall Street for they shall be called “Mortgage Backed Securities” or MBS. So far so good.

In the hay-days of 2003-2007, entities like I mentioned above, bought them like hotcakes. Just like stocks, when demand increases so does price. However with Bonds, an increasing price results in reduced yields. Hence the greater the demand for MBS, the lower mortgage interest rates are.

Assuming they’re still with me, they continue “So why are rates going to increase?” to which I ask “haven’t you read the papers? Who wants to buy Mortgages these days? Their ‘dirty’, people are being foreclosed upon, home prices are decreasing! Who in the heck wants to be a bank these days?” Demand dropped and rates increased. Just a year ago, rates were in the 6.50% range. Not bad, but the market ground to a halt. Remember?

They then ask “so how come rates are so low now?” to which I tell them to thank Uncle Sam. Now they’re really confused! I continue to tell them that the US Government has been buying BILLIONS of dollars in MBS this year. In fact, they are on a mission to buy up to $1.25 TRILLION dollars in MBS this year. So far they’ve purchase approx $850 Billion. THAT’S who’s buying mortgages this year which is what’s keeping prices up and mortgage rates LOW.

“WOW!” they say, “That’s Great! So why are rate going to go up?”

Now the clincher -> Because the Feds announced that they are slowing their buying and get out of the MBS business. Hopefully they won’t get out over night and the private sector will step up and buy. But make NO mistake – MORTGAGE RATES ARE GOING TO RISE STARTING N-O-W!

Need more info? Call Todd Abelson and Tyler Ford at Sunstreet Mortgage in Tucson, Arizona for all your mortgage needs or visit us at www.TucsonMortgages.com

For home buyers and mortgage rate shoppers, the timing couldn’t be better.

Because December 31 is one of Wall Street’s most thinly-traded days of the year, low volume is exaggerating the announcement’s impact on mortgage markets.

Mortgage rates are lower this morning.

However, you may not have much time to act.  Few mortgage lenders permit after-hours rate locking and bond markets close at 2:00 PM ET for the holiday.  If you miss today’s Fed-fueled low rates, markets re-open Friday for your second chance.

Give Tyler Ford and Todd Abelson of Sunstreet Mortgage a call today to talk about lowering your mortgage interest rate, lowering your monthly mortgage payment, skipping a payment, and getting a little cash back from your current impound account. Call 520-331-LEND (5363) today.

Mortgage markets are conflicted about the U.S. economy and the confusion is impacting home buyers.

If you’ve recently tried to lock a mortgage rate, you’ve probably experienced it personally. 

On one hand, reports of plunging sales suggest that the economy is slowing more quickly than expected. 

This is recessionary and tends to be good for mortgage rates.  So, some days, rates have been down.

On the other hand, some pundits (including a Federal Reserve official) are saying that recent Fed cuts may stoke inflation in the second half of 2008. 

This is inflationary and tends to be bad for mortgage rates.  So, some days, rates have been up.

Neither side is wrong — 2008 will likely show signs of both recession and inflation at some point.  Markets are waking up to this fact.

And this is why mortgage rates have changed so much from day-to-day — investors can’t agree upon exactly when the Fed rate cuts will work their way through the economy.  With each “target date” change, mortgage rates change.

This week, expect more of the same volatility with January’s Retail Sales data being released and five Fed speakers (including Fed Chairman Ben Bernanke) stumping. 

The spoken word of the Fed Chief can be a very powerful influence on markets.

If you’ve recently gone under contract for a home, you may find peace of mind by concentrating on a mortgage payment as opposed to a mortgage rate; rates could change multiple times each day and timing a market-bottom can be futile.

(Image courtesy: CNN)