Our economy has shown signs of recovery. Home values are up, the unemployment rate has fallen and other key components are showing positive signs. However, these numbers by no means indicate a booming economy. Hardly. In fact, “tepid” is a word that most pundits describe our current economic affairs. One bright spot however during this period of sluggish growth is the interest rate environment, all helped along by the Fed’s “quantitative easing” campaign, also known as QE1, QE2, and QE3. And HARP 2.0 interest rates are benefitting.
In late 2008, the Federal Reserve began a sustained program buying mortgage-backed securities to the tune of $600 billion. These purchases help keep interest rates artificially low. Lower rates mean consumers can borrow money more cheaply, more people can afford a home loan and monthly payments overall are reduced. Lower monthly payments mean more money pumped back into the economy.
The HARP 2.0 program has been on the receiving end of lower rates as homeowners who are underwater with their mortgage can refinance their loans regardless of the value of their property. As long as the loan is owned by Fannie Mae or Freddie Mac, homeowners who owe more than the value of their home can still refinance into a lower rate.
But economists are casting a wary eye on the Fed, wondering when the monthly $85 billion in mortgage-bond purchases will end. Once the buying stops, rates will rise. In fact, once the public even suspects that the Fed will end the program, rates can go up. Just like they did this past summer. Interest rates jumped more than a full percentage point from May to June. Why?
The Fed hinted that because the economy seems to be moving in the right direction, the quantitative easing program might end sooner rather than later. That simple announced spooked buyers of mortgage-backed securities and rates spiked. The Fed explained that “tapering” of purchases is the likely outcome meaning the Fed won’t suddenly put on the brakes but gradually reduce their monthly purchases from $85 billion per month down to more traditional levels. But tapering –a slow and steady reduction in mortgage backed securities buying – provided little comfort.
Yet the Fed surprised nearly everyone with an announcement that no tapering will happen nor will the quantitative easing program end as of now. Interest rates for HARP 2.0 mortgage loans which had shot up with their other home loan counterparts but have since eased back down. For those who qualify for the HARP 2.0 program, mortgage rates are still very, very competitive.