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Fed Cuts Rates by .25% – Mortgage Rates Continue on Roller Coaster Ride
11th December 2007
As expected, the Fed cut both the Discount and Fed Funds rate by .25% today. The big hitters on Wall Street were hoping for a half a point cut, so stocks took a dive as soon as the news was announced. The cut in the discount rate will mean that banks will lower the Prime Rate by .25%. So this cut will give consumers with home equity loans and some credit cards immediate relief.
How will this affect mortgage rates? The Fed can only change short term rates. Mortgage rates change based on activity in the mortgage backed securities market. Rates there have been extremely volatile over the last week, going from a 2 year low early last week, then jumping nearly 3/8ths of a point higher over the last several days. Usually mortgage bonds sell off before the Fed meets. Today they started strong and got stronger after the Fed announcement. This means that mortgage rates are better today and will probably go lower in the days ahead.
But don’t expect this to last. We are on a roller coaster, and there will be more ups, downs and sharp curves ahead.
Illinois mortgage Rates and News.
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December 13th, 2007 at 11:02 am
I agree with your general assessment of the rate environment. What borrowers should also be aware of is that even if treasury yields go lower, the spread between them and mortgage rates can widen due to mortgage quality deterioration.
This can negate the effects of a falling rate environment in whole or in part. Add that to falling values which can be the cause for needing mortgage insurance and you have two very good reasons to act now, assuming you have a sensible loan on the table.
This is not a time to be greedy. Greed is one of the reasons for the mortgage meltdown. Greed on just about everyone’s part, from the borrower to the end investors, as well as all the players in between.
December 13th, 2007 at 11:01 pm
Fed Lowers Rates, But Misses Expectations
The Fed lowered rates as we expected. The markets went into a tizzy anyway, saying the quarter point reduction was not enough, and the expectation was a 50 basis point cut. What will this mean for interest rates? It’s hard