The U.S. Federal Reserve’s decision to maintain its bond purchases is likely to boost mortgage volume over the near term, and could also give some lift to RMBS volumes.

“We believe yesterday's Fed announcement will reverse some of these recent trends,” said analysts at Fitch Ratings in a report today. “We expect mortgage interest rates to decline and give a short-term boost to mortgage volume as borrowers look to take advantage of the temporary reprieve.”

A short-term boost in mortgage volume may also result in a modest increase in RMBS volume later this year, according to Fitch.

Mortgage rates increased sharply in recent month over concerns that the Fed would taper its quantitative easing. The average 30-year mortgage rate spiked to 4.46% in June from 3.4% in May, according to the Freddie Mac Primary Mortgage Survey published June 28, 2013.

This rise in rates, said Fitch, also spilled over to mortgage application volume with a sharp decline in refinancing activity.

 “After flagging the taper in May, suddenly markets were pricing in interest rate increases far earlier than the Fed had anticipated, and yesterday was the inevitable correction of those expectations. 10-year bond yields dropped sharply to 2.69% in a matter of hours,” said Dean Cook, investment research analyst at Duncan Lawrie Private Bank, in a press release.




Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.