Taxes, Taper, and a Technical Breakout

September 20, 2021

Home loan rates were mainly unchanged this past week. Let’s break down what is threatening the financial markets and rates.

The Taper Threat

A big threat to stocks, bonds, and rates is when the Fed will announce a tapering or scaling back of bond purchases. Presently the Fed has been buying at least $120B worth of Treasuries and mortgage-backed securities (MBSs) every month. This Fed buying is the main reason why home loan rates remain near all-time lows.

With inflation elevated and froth in the housing market, there is growing pressure on the Fed to start buying fewer bonds – and there is speculation the Fed will start tapering by purchasing fewer MBSs.

No one knows what, if and when the Fed will do anything, but if the Fed buys fewer MBSs, home loan rates will likely move higher. Back in 2013, when the Fed mentioned the word “taper” home loan rates shot up 2.5% over the next 6 months. The Fed knows this and is trying to scale back purchases without causing a similar disruption.

The next Fed Meeting Monetary Policy Statement will be released on Wednesday, Sept 22nd at 2:00 p.m. ET. We will find out soon enough if the Fed is confident enough to scale back bond purchases and not trigger a taper tantrum reaction in the bond market as we saw back in 2013.

The Tax Threat

The Administration and Congress are trying to pass a $3.5T spending plan that will include various tax hikes. There is a concern in the financial markets that a broad range of tax hikes could lead to slower economic growth, at a time when economic growth is already decelerating. Stocks don’t like the idea of slower growth and have been under selling pressure of late as details of the $3.5T plan have emerged.

Normally bonds and rates would do well when stocks suffer. But that has not happened this past week. Bonds are worried about the taper threat and the idea that a large $3.5T plan could put upward pressure on rates as the bond market has to absorb all the new bond issuance required to fund the enormous spending plan.

Much like the taper threat, no one knows how big the spending plan will ultimately be and what taxes will be included. Once something is close to being passed, stocks, bonds, and rates will react accordingly.

Bottom line: We do not know if the Fed will also announce a “modest” tapering in bond purchases next week or how the bond market will react. At some point, the Fed will have to scale back purchases and when it does, we should expect an increase in rates.

Government Agency Approvals

FHA Non-Supervised Mortgagee Approval #:
24751-0000-5
VA Automatic Lender Approval #:
902324-00-00

Mortgagee/Loss Payee Clause

Carrington Mortgage Services LLC
ISAOA/ATIMA
P.O. Box 692408
San Antonio, TX 78269-2408

Industry Links

Loan Limits LookupMortgage Letters
This information is provided for your convenience and Carrington Mortgage Services, LLC makes no warranties concerning the accuracy or completeness of any of the information. This is not financial or legal advice and should not be taken as such. This information is for mortgage professionals only and is not intended for distribution to consumers.
CAREERSINVESTORSabout uswholesale
An Equal Housing Opportunity Lender. Copyright 2007 - 2022 . Carrington Mortgage Services, LLC headquartered at 1500 South Douglass Road, Suites 110 & 200-A, Anaheim, CA 92806. NMLS ID # 2600. Toll Free # 800-561-4567. All rights reserved. Restrictions may apply. All loans are subject to credit, underwriting and property approval guidelines. Nationwide Mortgage Licensing System (NMLS)

Consumer Access Web Site: www.nmlsconsumeraccess.com.

The content of this website is intended for licensed third-party originators or brokers only and may not be duplicated or disseminated to the public. Carrington Mortgage Services is one of the leading wholesale mortgage lenders.

Government Agency Approval | FHA Non-Supervised Mortgage Approval #: 24751-0000-5 | VA Automatic Lender Approval #: 902324-00-00

linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram