2012 Mortgage Rate Outlook

Mortgages

There’s a possibility that mortgage rates could move considerably lower early this year. It will be brief, but here’s the scenario under which I see that unfolding: If fears of the European debt crisis hit a crescendo, that’s going to spell the low point in Treasury yields and mortgage rates. You could see 30-year fixed mortgage rates moving down into the 3.5 percent neighborhood on average. But again, I believe that opportunity’s going to be brief. All told, for much of 2012, I expect we’re going to be in familiar territory: the low 4 percent neighborhood. The bottom line is that mortgage rates are not going to be an impediment to well-qualified borrowers anytime in 2012. 

Tax Cut Extension Has Begun To Raise Mortgage Rates!
As part of the temporary resolution to the recent battle over the Tax Cut Extension that took place in the last weeks of December, Congress decided that mortgage borrowers should foot part of the bill.  Technically, Congress increased the "Guaranty Fees" that Fannie Mae and Freddie Mac charge to lenders that securitize MBS (Mortgage-Backed-Securities) with the Agencies, but ultimately, this cost must either be absorbed by lenders, passed on to consumers, or some combination of the two.
From the official release on 12/29/11:

 "On Dec. 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011. Among its provisions, this new law directs the Federal Housing Finance Agency (FHFA) to increase guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises) by no less than 10 basis points from the average guarantee fees charged by these companies in 2011 on single-family mortgage-backed securities. This requirement is effective immediately, meaning that the average guarantee fees charged in2012 need be at least 10 basis points greater than the average guarantee fees charged in 2011." 

 The first official effects of these measures were seen today when BB&T distributed information to its brokers and correspondents regarding the impacts of the fee increase.  In the announcement, BB&T explains that the 10 basis point increase in the Guaranty Fee or "G-Fee" as it's called, equates to roughly 0.125% in rate.  

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