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QE3 (Quantitative Easing three) to help with mortgages

October 3, 2012 by · Leave a Comment 

The Federal Reserve introduced the long awaited QE3 in September 2012.  Under the program, Feds will purchase $40 billion of mortgaged-backed securities a month with an aim to boost employment and housing.  It is anticipated that the program will continue until the end of third quarter of 2013.

The most immediate benefit of QE3 is the easing of the mortgage interest rate.  Immediately after the introduction of QE3, 30-year fixed mortgage rate which was at approximately 3.55 percent has gone down to around 3.39 percent according to Freddie Mac.  Some expect that the rate may even fall below 3 percent fueling further refinancing.  Meanwhile, the unemployment rate has dipped below 8 percent for the first time in nearly in four years.

The Feds program is buying approximately three-fifths of mortgage backed securities and the maturity stays at 30-years.  This is creating a demand for Freddie Mac and Fannie Mae agency mortgage bonds from income seeking bond holders.  Banks including the nation’s two biggest mortgage lenders, JPMorgan Chase and Wells Fargo, are also benefitting from the situation and posted earnings growth in third-quarter.  The Wells Fargo mortgage originations climbed from $131 billion in the previous quarter to $139 billion in the current quarter.

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