Average interest rates for home loans are expected to rise close to 6 percent by the end of 2010, as the federal stops spending trillions to prop up the mortgage market. It's like taking a crutch away from someone healing from a broken leg: Even if this person is on the mend, you'd expect him to wobble a little.

However, so far the mortgage market remains unmoved. Borrowers can still get long-term, rock-bottom low interest rates below 5 percent. What's going on?
Mortgage companies usually raise the money they need to make new home loans by selling bonds to investors. But during financial crisis, the bond market collapsed and the federal government took over, becoming one of the biggest buyers of these bonds, called mortgage-backed securities.

Now, in a huge shift for the mortgage industry, the federal government is stepping back. This month, the massive federal program to buy mortgage-backed bonds is finally running out of money to buy new bonds. One piece of the program, run by the Treasury, stopped buying mortgage-backed securities at the end of last year. And this March, the Federal Reserve will wind down another piece of the program that bought up $1.25 trillion in Fannie Mae and Freddie Mac mortgage-backed securities, according to coverage in Mortgage News Daily.

Economists thought the end of the huge bond buying spree would "test the resiliency of the market," according to a statement from Freddie Mac. But so far, bond buyers are paying high prices for mortgage-backed securities like Fannie Mae and Freddie Mac bonds similar to the prices they pay for Treasury bonds that are backed by the full faith and credit of the government. Remember last year, when the federal government promised to cover any losses from Fannie Mae and Freddie Mac, no matter how large? That's one large reason that private investors have been willing to step in and buy Fannie Mae and Freddie Mac bonds. Because of the federal promise, the bonds are effectively as safe as Treasury bonds.

Average interest rates for 30-year, fixed rate mortgages slid back down to 4.95 percent in the week ending March 11, plus an average origination fee of 0.7 percent of the mortgage amount, according to Freddie Mac's Primary Mortgage Market Survey. That's close to the record low interest rates of late last year, which bottomed out at an average 4.71 percent for the week ending December 3. In January, average interest rates rose to 5 percent and have hovered there or just below ever since.

More tests to the mortgage market are coming. To begin with, the Federal Reserve's most important interest benchmark rates are still set at effectively zero. Historically, officials have typically kept these interest rates at 2 percent or above, effecting interest rates throughout the capital markets. The Fed officials continue to promise that they will keep these rates "exceptionally low" for an "extended period," -- language they have used for more than a year.