As the spring real estate season kicks in and the tax-credit deadline for sale agreements approaches, the government is ending a program that has kept interest rates low and housing-affordability levels high for months.
On March 31, the Federal Reserve will stop buying mortgage-backed securities from Fannie Mae and Freddie Mac, returning control of interest rates to private investors. For months, industry observers have predicted that once government supports are removed, interest rates will rise quickly, pushing many of the first-time buyers critical to housing’s recovery out of the market.
and more news on Interest Rates
Option-ARM Rates
Option-ARM loans represent fewer than 2 percent of all home loans, but those loans add up to nearly $300 billion because they were written to finance pricey homes.
So far, rates on many option ARMs haven’t risen because overall interest rates have stayed low. But if actions by the Federal Reserve push rates up, then option ARMs will go up as well.
Unless these option ARMS are quickly restructured, a large share of these borrowers may walk away.
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