Watch Rates Soar If The Fed Stops Buying Up Mortgages

Will the Fed actually stop snapping up mortgage-backed securities (MBS)?

Maybe, but they better be on guard if they do, in terms of what will happen to the housing market.

Calculated Risk offers this interesting analysis.

Earlier this year, Political Calculations introduced a tool to estimate mortgage rates based on the 10 Year Treasury yield (based on an earlier post of mine): Predicting Mortgage Rates and Treasury Yields. Using their tool, with the 10 Year yield at 3.356%, this suggests a 30 year mortgage rates of 5.33% based on the historical relationship between the 10 Year yield and mortgage rates.

Freddie Mac released their weekly survey Thursday:

Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 4.83 per cent with an average 0.7 point for the week ending November 19, 2009, down from last week when it averaged 4.91 per cent. Last year at this time, the 30-year FRM averaged 6.04 per cent.

This suggests morgage rates are about 50 bps below the expect level …

Read the whole thing >>

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