Yesterday the Fed and Treasury served up a hot, heaping helping of holiday cheer to the mortgage industry. Their massive action to lower mortgage and other borrowing rates came as a much needed gift to hungry homeowners, buyers and (let's face it) guys like me in the mortgage biz.
Here's what happened: The government stepped directly into the mortgage market by announcing a purchase of up to $500 billion in mortgage-backed securities. These are essentially pools of loans that have already been made and securitized by Fannie Mae and Freddie Mac. By buying them up, the government frees up money for more direct lending.
The effect of this action was a stunning drop in mortgage rates - as much as a full percentage point on the 30-year in a single morning. While this doesn't help folks with falling home prices or a recent pink slip obtain a better mortgage, it certainly helps home buyers pick up a new home at an even better value.
What does this all mean for you? Bottom line, a 1% drop in mortgage rates on a $400,000 loan equates to about $3,100 in annual payment reductions. Now that is an economic stimulus! And, it makes for a happy, happy holiday.
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