QE3 Targets Housing and Mortgage Rates for Recovery

Last week, the Federal Reserve finally announced QE3 after mentioning the possibility for several months. This latest round of quantitative easing will be the purchase of $40 billion per month of mortgage backed securities. This action by the Feds is intended to keep mortgage rates down, spur home purchases, increase consumer spending and eventually create jobs. While this plan sounds promising, it may take many years to see it evolve. During the housing boom, housing construction took off as many existing homeowners purchased second homes, vacation homes or investment properties. When the crisis hit, many of these homes fell to foreclosure and continue to sit empty. Even though home inventory is low, many of these homes have not yet hit the active market. It seems logical that home construction will not take off until what is available is sold and a natural inventory returns. While it will take some time before unemployment falls, the Feds will continue with their plan until reaching their target unemployment of 7%, which is still above the rate during the housing boom. The continued low mortgage rates that result from QE3 will be a benefit to existing homeowners. At this time, the housing market has been slowly improving with some areas even seeing an increase in home prices. This improvement in prices is helping some homeowners step across the underwater bridge into positive equity. According to CoreLogic, approximately 1.3 million Americans no longer hold underwater mortgages. While many of these homeowners may have already refinanced through HARP, the Home Affordable Refinance Program, there are many who are not eligible because their loans were not Fannie Mae and Freddie Mac loans. If home prices continue to increase enough, some of these homeowners may now be able to obtain a mortgage refinance through traditional means. While the FHA streamline refinance with reduced insurance premiums is helping borrowers who have loans endorsed prior to June 1, 2009, there are many FHA mortgage holders who are not in this category and are unable to refinance because of high FHA upfront and annual insurance fees. Rising home prices can possibly get some of these homeowners into conforming mortgage refinances at a faster pace. The high end real estate market has been showing significant signs of improvement recently. Even though the loans required for these properties, jumbo mortgages, are not sold to the GSE's or other government entities, jumbo mortgage rates are only slightly higher than conforming mortgage rates. Any affects of QE3 with regard to keeping mortgage rates low, should have the same affect on jumbo mortgage rates which will help this sector continue to see improvements. The results of QE3 may or may not be seen for awhile since some consumers still have default or foreclosure blemishes on their credit making it impossible at this time to make a home purchase. Others have lost their jobs and ultimately have credit issues to deal with. Tight credit guidelines, high credit score requirements and lower debt to income ratios can make it impossible for many consumers to purchase a home and will continue to do so unless lenders begin to show some flexibility. QE3 is a plan of action and whether it works at spurring the economy, only time will tell. In the meantime, any one who qualifies for a traditional mortgage or special mortgage program should just go ahead and take advantage of the low mortgage rates it will keep around. FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders' rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee. mortgage refinances