If the Federal Reserve stops purchasing debt from Fannie Mae and Freddie Mac--as they said they would do in the first quarter next year--mortgage rates will likely rise.
Why? Because the Council of Foreign Relations has a chart that shows only the Fed is purchasing GSE debt. With that being the case, and FHA delinquencies rising, mortgage rates will rise if foreign investors are not purchasing the debt.
Foreign investor had been purchasing agency debt during the good times, keeping mortgage rates low on Fannie and Freddie loans, but central banks are printing money to keep their own banks solvent.
Just a thought. With mortgage rates nearing all-time lows this week, it might be time to refinance if you can save $100 on your mortgage, if your home is not underwater and if you still have a job. Otherwise, unless the Fed decides to extend agency purchases (which is certainly possible) or it have Government Sachs purchases debt with its own money, the mortgage market will not be driving economic growth anytime soon.
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