If the Federal Reserve Board suddenly stops purchasing agency MBS on Jan. 1, mortgage rates could jump by 30 basis points to 50 basis points, according to Fannie Mae chief economist Doug Duncan.

Conventional mortgages with principal balance up to $417,000 would likely rise by 30 bp and rates on higher balance loans of $650,000 to $729,750 could go up by 50 bps, he told MortgageWire.

The Fed's $1.25 trillion MBS purchase program is slated to expire Dec. 31.

But Duncan expects the Fed will extend and slowly wind down its purchases of Fannie, Freddie Mac and Ginnie Mae MBS.

"Thus, incremental winding down of the Fed's program may not be too disruptive of rates and spreads," Duncan said in his August economic forecast. The Fed is expected to decide how it will wind down the MBS purchase program at the Sept. 22-23 Federal Open Market Committee meeting.

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