The era of cheap financing may be winding down
Who says money’s cheap? According to Bloomberg News, the era of record low interest rates, which help nudge the housing market towards recovery and record home-lending profits, could be coming to an end.
Last week, Fannie Mae-guaranteed 3 percent securities, used by lenders to price new loans, fell to their lowest level since September 12, the day before the Federal Reserve announced that it would buy $40 billion of mortgage debt each month.
The securities’ drop, combined with higher taxes following the fiscal cliff budget deal and the Fed’s indication that it may stop its open-ended bond-buying program this year, could all lead to increased borrowing costs for homeowners.
“It would present a test for the housing market just as we’re going into the key spring selling season,” Mark Vitner, a senior economist in Charlotte, N.C., at Wells Fargo, the top U.S. mortgage lender, said. “I wouldn’t wind it down when it is poised to do its most good.”
While mortgage rates are not expected to skyrocket, higher rates could slow a recovery for the U.S. housing market. Moreover, rising borrowing costs could also “spoil the party” for banks, like Wells Fargo and JP Morgan Chase, that profited from a more than 20 percent jump in mortgage originations last year. [Bloomberg] —Christopher Cameron