Federal Reserve Stretches Loan Aid Goal
For the second time since August, the Federal Reserve has opted to slow down emergency lending programs designed to boost the economy. The decision indicates the Fed is moving its stance from managing the financial crisis to nurturing an economic recovery.
The original goal was for the Fed to buy $1.45 trillion in mortgage-backed securities by the end of this year. However, last week it announced that the goal would not be reached until next March, signaling its confidence in the budding recovery.
At the same time, the Federal Reserve decided to hold its key bank landing rate to a record low of between zero and 0.25 percent. That means that the commercial bank prime lending rate – used to set home equity loan rates, credit cards and other consumer loans – will stay around 3.25 percent.
Analysts say these action will keep mortgages rates low for now, but they will eventually creep higher as the Fed gradually withdraws from the market and the housing market stabilizes. Homeowners with adjustable rate mortgages need to move fairly quickly because rising rates combined with the expiration next June of a government-backed refinance program, will make it harder to refinance in the future.