Thursday, March 26, 2009

Fed's Move Good News For Mortgages

Article Written By: Jilian Mincer
Posted By: Madeleine Brooks

f you've held off on buying a home or refinancing a mortgage, waiting for some special sign - well, it may have come.

The Federal Reserve's unusual decision yesterday to buy Treasury bonds and mortgage securities will drive down already-low rates on conventional mortgages, maybe to 4.5%.

"Perspective homebuyers have the type of opportunities they haven't seen in years," says Greg McBride, senior financial analyst at He expects prices and interest rates to drop to 2003 levels.

But unlike several years ago, borrowers will need good credit - typically scores above 700 - as well as proof of income and a 20% down payment.

The Fed hopes that by buying long-term government bonds rather than short-term debt it will lower interest rates and help unclog the financial system.

"The biggest impact of this will be drive down mortgage rates," says Richard B. Hoey, chief economist for The Bank of New York Mellon and chief economist of the Dreyfus Corp.

Lower rates, he notes, are good for consumer confidence and good for the housing sector. Homeowners and potential buyers will benefit from new or refinanced mortgages. If people start buying homes, it will help stabilize rapidly declining prices.

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