The Federal Open Market Committee meets today and will issue a press release in addition to cutting the Fed Funds Rate at 2:15 P.M. ET.
The verbiage of the press release will be as widely watched as the rate cut itself because markets are curious about how far the Federal Reserve will go to lessen the impact of an economic recession.
With every Fed Funds Rate cut, recession becomes less likely, but the other side of the equation is that the probability of long-term inflation grows.
Like recession, inflation can be bad for the economy, too.
The Fed Funds Rate now stands at 3.000% this morning and the FOMC is expected to lower it by 0.750% or more this afternoon.
Mortgage rates are rising today because cuts to the Fed Funds Rate weaken the U.S. dollar which, in turn, makes mortgage re-payments less valuable to investors.
http://www.firstsunrisemortgage.com/
Posted on March 18, 2008
Mortgage rates fell last week on growing evidence of a recession, but far fewer Americans were eligible to take advantage.
Mortgage lenders continue to reduce product menus and that is leaving homeowners with fewer mortgage financing options than before.
As an added hurdle, Fannie Mae and Freddie Mac recently added "risk-based" fees on all conforming home loans, subjecting mortgage applicants to higher mortgage rates based upon:
So, even though mortgage rates moved lower last week, for many homeowners, the cost of homeownership did not.
This week, the biggest scheduled news is the Federal Open Market Committee's Tuesday meeting.
It's widely expected that the Federal Reserve will lower the Fed Funds Rate by 0.75%, lowering Prime Rate to 2.250%.
This is good news for Americans carrying revolving consumer debt because those credit types are often tied to Prime Rate. Two popular types of revolving consumer debt are:
Meanwhile, a cut in the Fed Funds Rate should push mortgage rates up because Fed Funds Rate cuts can lead to inflation.
Since September 2007 -- when the Fed started to cut its benchmark rate -- the Fed Funds Rate is down 2.250% but mortgage rates are slightly higher. This is a normal occurrence and should happen again this week.
Markets will be closed for Good Friday this week.
There is no such thing as a "national real estate market".
Real estate is local.
We know this is true because even cities don't have their own real estate market.
This chart shows how home prices have diverged across adjacent zip codes over the last 12 months.
Some influencing factors:
Stories about "The U.S. Real Estate Market" are irrelevant. In each city in America -- and on a street by street level -- real estate markets can be vastly different.
(Image courtesy: Wall Street Journal)
When mortgages began to sour last Fall, Fannie Mae and Freddie Mac instituted "loan-level pricing adjustments".
The concept is basic: For mortgage applicants with less-than-ideal credit profiles, mortgage pricing is adjusted to compensate for the added risks.
It's still a conforming loan, but with adjustments.
Effective March 6, though, Fannie and Freddie's definition of "high-risk" changed and the adjustments got much more expensive.
Some of the more impactful changes include:
If your mortgage application is a conforming loan destined for Fannie Mae or Freddie Mac, these adjustments may already be on your loan officer's rate sheets but be sure to ask.
If the adjustments are built-in yet, consider whether your should lock your mortgage rate right away.
So, even though mortgage rates fell Wednesday, new Loan-Level Pricing Adjustments pushed the underlying payment higher for a lot of Americans.
Between Tuesday and Thursday, mortgage rates rose as much as during any three-day period in recent memory before settling back a bit on Friday's jobs data.
Fourteen speeches from members of the Federal Reserve were partly to blame for the mortgage rate chaos, but several other factors played a part, too.
One of the biggest other factors last week was that multiple big-name investors were "margin-called".
Now, margin is a basic financial concept, but to do a good job explaining it requires a lot of numbers and math. So -- if you're curious -- visit Wikipedia for the complete run-down.
Or, just know that last week's margin calls forced the investors to sell ther mortgage bond holdings into a falling mortgage bond market. This accelerated the mortgage bond markets freefall for home buyers and rateshoppers alike.
The extra supply from the margin calls created a stronger push downward on mortgage bond prices than markets would have seen without the margin calls.
This, of course, caused mortgage rates to rise faster than they would have without the margin calls, too.
Only after February's weak job numbers were reported Friday did mortgage rates recover. Overall, rates were higher on the week and -- at one point Thursday -- touched their highest levels in several months.
This week will be fairly light on data and lacking of Federal Reserve speakers. Therefore, watch for momentum trading to take hold.
The two data points to watch this week are:
Both are reasonable gauges of inflation in the U.S. economy and both are expected to show slowing from their previous readings. Strength will be interpreted as inflationary and should cause mortgage rates to rise.
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John Topa, Your Connection to Affordable FHA Mortgages. Serving PA since 1997. Contact me today to see how your clients can benefit from honest, informed mortgage advice. 570-344-6091.
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