Fed To End MBS Purchase Program

There was major economic news on many fronts this week, with mixed results for mortgage markets. The Fed statement essentially followed the expected script, demand was strong for the Treasury auctions, and much of the economic data released during the week was stronger than expected. The net effect was a small increase in mortgage rates during the week.

As expected, the Fed made no change in the fed funds rate on Wednesday. The biggest surprise was that the Fed’s Hoenig dissented from the decision, as he believes that economic conditions have improved enough that the Fed should begin to tighten policy. The Fed’s outlook for the economy was slightly more positive than in the prior statement. The statement repeated that the mortgage-backed security (MBS) purchase program will be concluded by the end of March. Some investors were disappointed that the Fed didn’t show more support for a possible expansion of the MBS purchase program, and mortgage rates rose after the news.

There is a wide range of expectations in the investment community about the impact of the end of the MBS purchase program on mortgage rates. The Fed has been purchasing roughly 75% of new MBS issuance, and a decline in demand from one source normally leads to higher yields to attract other buyers. One argument, however, is that the end of the program has been expected for quite a while, so mortgage rates already reflect the news, and there could be little reaction over coming months. Other analysts predict an increase in mortgage rates of as much as one percent. The Fed itself expects a small increase in mortgage rates as a result of the end of the program.

Have you heard the Good news about the SBA loan programs?

Stimulus I – Extended Through February 2010
The extension of the stimulus bill was signed by President Obama Saturday, December 19th.

Provisions:
• SBA 7(a) guaranty percentage at 90% through February 2010
• Elimination of borrower guaranty fees through February 2010
The bill will support an additional $4.5 billion in SBA stimulus funding through an appropriation of $125million.

Stimulus II
The second SBA stimulus bill, aka Senate Bill 2869, passed the Senate Small Business Committee mid December. Expected House and Senate passage is expected this month (Senate does not return from Christmas recess until this week).

Provisions:
• Increase 7(a) loan limit from $2 million to $5 million
• Increase the 7(a) loan guaranty to a maximum of $4.5 million (90%)
• Increase the SBA 504 loan limit from $1.5 million to $5.5 million
• Allow the 504 loan program to refinance short-term commercial real estate loans
• Extend Stimulus I – 90% 7(a) guaranty and borrower fee waivers — through
December 2010
• Increase the loan limit on microloans from $35,000 to $50,000

We Close a Tremendous amount of SBA loans. Call Michael McDevitt at 888.650.9966 Ext.100 for all your commercial needs!

US Housing Starts Decline – Good For Housing:

Starts of new homes have dropped well beyond expectations in December.  New home starts have dropped 4.0% in December to a seasonally adjusted rate of 557,000 units per year.  A much sharper decline than the 0.2% drop expected by industry experts.  However, building permits have increased by 10.9%.

So why is this “good” news for housing?  Because this helps to keep inventory levels in check and to help bring a balance between buyers and sellers.  With too much inventory (which only increases with each new home built) the balance is tipped towards the buyers.  With very low mortgage rates, tax credits, and a leveling of the inventory levels, this is helping to stabilize our market.