The taper is nearly complete -- lock your borrowers in while rates are low

by Ryan Smith18 Sep 2014
The Federal Reserve said yesterday that its bond-buying program will end in October as scheduled. So does that mean mortgage rates will see an immediate spike? The short answer is: not yet.

But that doesn’t mean there won’t be an adjustment down the road – so now is probably a good time to encourage prospective homeowners to buy.

According to Bryan McNee, vice president and senior bond analyst for, mortgage-backed security prices will most likely hold relatively steady while the Fed is still making monthly purchases. But after that, MBS rates will drop – meaning mortgage rates will rise.

“The most common question among loan officers is: If everyone knows that the Fed will no longer be purchasing MBS in November, does that mean that rates have already adjusted lower?” McNee said. “And the answer may surprise you: No. And why is that? That is because the Fed tells the primary dealers exactly what they are going to purchase each week and bond traders can simply front-run the Fed and make a couple of risk-free basis points.  And quite simply, they will continue to do that until the Fed is actually not purchasing any more agency MBS (and therefore bond traders can't front run them).  So, in November your rates will start to feel the sting of a very large purchaser of agency MBS exiting the market.”