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May 22, 2014

Taper Tempered: Mortgage Rates Near 7 Month Lows

Research and Analysis
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Just the talk of tapering sent mortgage rates sharply higher last June from 3% to mid-4%. All this happened well before even a smidgen of tapering was actually started by the Fed.

However, over the past five months the Fed has been tapering from $40 billion to $20 billion of growth in mortgage-backed securities (MBS) holdings. So mortgage rates should have climbed higher, but in fact they've moved lower.

Global uncertainty causing a flight to safety in U.S. Treasuries, a downright dismal first quarter GDP reading, and possibly even some harsh weather have all played a role. One important reason there hasn't been more upward pressure on long-term mortgage rates is because even though the Fed's purchases of MBS have steadily declined, their share of newly issued MBS have actually increased. This shouldn't come as much of a surprise considering the drop in originations over the past year as refinance activity declined precipitously, causing the overall volume of MBS issuance to plummet. Until the overall volume of home-purchase loans picks up this is likely to continue in the short term.

In the meantime take advantage of these attractive mortgage rates, they're currently near 7 month lows.

The Taper has been offset by declining origination volume

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