More Mortgage News
As I have written about previously, the feds are planning to cease their purchases of mortgages in March. This is leading to concerns from some that mortgage rates could rise 0.5-1% (*see note below) and cool the recovery of real estate.

The fed currently holds $909B in mortgages. When the fed buys mortgages, this gives the bank a virtually guaranteed willing buyer which removes some risk from the banks. Note that banks are averse to risk so... RISK=INTEREST RATES. The less the risk, the lower the interest rates banks will charge and vica versa.

The fed has indicated it will cap its mortgage purchases at $1.25T in March. If this happens, the banks will have to rely more on private investors of their mortgage-backed security (MBS) products. With the economy improving some, there are other investments that give better returns so these investors will require higher rates-of-return (read interest rates) to convince them to buy these MBS's.

Voila! There you have a simplified view of the concern builders and some others have about the feds halting their purchase of mortgages.

*note: a rise of 1% in mortgage rate on a 30-year mortgage will result in a $125 increase in the monthly principle and interest payment on a $200,000 fixed 30 year mortgage.