Consistent Fed Message

Following the roller coaster ride the week before last, this past week was one of the quietest weeks for mortgage rates in a very long time. While the week before contained a Fed meeting, Employment report, and GDP data, there was very little significant economic news last week, and mortgage rates barely changed.

In addition to a lack of major economic data, another reason for the limited volatility last week was that the message conveyed from the Fed was very consistent. The largest influence on mortgage rates in recent months has been shifting expectations for future Fed policy. According to the Fed officials that spoke last week, the Fed expects to begin to taper its bond buying program later this year. The exact timing will depend on future economic data. Investors currently expect that the tapering will begin in September or October. This means that the reaction to major economic data likely will continue to be exaggerated, as we saw on several occasions the week before last.

Last week President Obama laid out his plan for restructuring Fannie Mae and Freddie Mac. It is very similar to what is being proposed in the Senate, so there were no big surprises. The primary component of the plan is to shift credit risk on mortgages from the government to the private sector. There was no timetable provided, but any changes are expected to take years. The announcement created a lot of headlines, but did not have an immediate impact on mortgage rates and is not likely to affect rates anytime soon.