The American Bankers Association's (ABA) Economic Advisory Committee predicts that the Great Recession will peter out by the third quarter of 2010. In today's environment of high unemployment and monstrous federal deficits, that might seem a bit pipe-dreamy.
"The impetus of the recovery as we see it comes from two key sources," said Bruce Kasman, JPMorgan Chase's chief economist at a press conference. "The first is the successful steps taken to contain the financial crisis...and the second point is that the consumer has stabilized during the first half of the year." The recovery isn't expected to be overly robust, but economic improvements are expected to continue to build slowly.
Today's mortgage rates
In the wake of the Fed's exit from the mortgage-backed securities market, interest rates have risen slightly but steadily over the last few days. The best mortgage rate quotes are ranging in the low 5 percent range. The ABA predicts that mortgage rates will hit 5.5 percent by the end of this quarter. However, two things can be expected to keep mortgage rates in check in 2010: continued high unemployment (the ABA doesn't expect it to drop below 9.5 percent), and low inflation.
Adjustable mortgage rates and home equity loans
Loans based on short-term rates will probably be hit with small interest rate increases toward the end of the year, as the Fed is expected to hike its Federal Funds rate to 0.50 percent. This is only slightly higher than the range of zero to 0.25 percent in force today, so those with ARM loans who are unable to refinance their mortgages should not have to concern themselves with oversize rate increases anytime soon.
Mortgage underwriting standards
Underwriting standards for government-backed loans likely won't again slacken any time soon; however, private portfolio lenders are again dipping their toes into the market. Now that the government has ceased its de facto rate subsidies for Fannie and Freddie (by buying mortgage-backed securities), these other private lenders may once again be able to lend at a profit.
Insurance companies, pension funds, and banks are among those closely considering their return to the market; as they emerge in numbers, more mortgage products should become more available to more borrowers.