FOMC Cuts Discount Rate by 0.75%

From the FOMC press release:

“The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent….

As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant.  The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities.

…In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent.”

Mortgage rates should continue to improve with the purchase of MBS.   This is why you need to do as Kenneth Harney recommends in this Sunday’s paper:

“Ask your broker or loan officer whether you can lock in today’s rate but still have the ability to move down should cheaper money become available to you.

Not all lenders can accommodate such requests. Some brokers offer 60-day locks with that option; others may charge you”.

Fed Funds Rate cut 0.25% to 2.00%.

The FOMC cut the Funds Rate another 0.25% to 2.00% based on an 8-2 vote.  Remember, this does not mean that the 30 year fixed rate is now 0.25% lower.   This does mean that if you have a HELOC that is attached to Prime (and it’s not fixed), your rate will go down 0.25%.  Prime will be reduced to 5.00%. 

The FOMC also reduced the Discount Rate 0.25% to 2.25%. 

The Fed Statement regarding today’s rate cuts will have a more dramatic impact mortgage rates (mortgage backed securities).

“Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters….

The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices…”

The 0.25% rate cut was highly anticipated and all ready priced into the market.   We’ll see how bonds react once the markets have a chance to absorb the statement and Fed actions today.    This week will remain very volatile with rates…tomorrow is loaded with economic indicators and Friday, we have the big daddy:  The Jobs Report.

Fed Funds Rate now at 3%

Today the FOMC reduced the Fed Funds rate by a half point to 3%.   A half point rate cut was expected by Traders and so far we do not have significant changes (yet) to mortgage interest rates.  However, if you have a HELOC, your interest rate has just gone down again.   The Fed also reduced the Discount Rate to 3.5%.   The Fed is leaving the door open for future cuts as needed.   You can read the press release here.

We still have Thursday’s PCE report and Friday’s Jobs Report which both highly impact mortgage interest rates.  If either indicate strong inflation, we will see mortgage rates increase.


Lock It or Lose It

Mortgage rates have been very volatile these past few days.   Yesterday morning, I posted that the 30 year conforming fixed was under 5% and by the end of yesterday, mortgage rates had increased by 0.375% to rate or around 1% in fee. 

Rate shoppers lost out big time if they did not lock.

Rates are continuing to rise at this time.  Please don’t dilly dally with your mortgage interest rates.  There are fewer Mortgage Professionals to assist you in our current market and many of us experienced (and I’m still seeing it today) banks being “clogged” with people trying to lock…websites “down for maintainance”…etc.  By the time a Mortgage Professional can get through to lock in a loan, the rate is gone.  Bam.

Next week has offers a full menu of events that promise to impact mortgage interest rates:

  • FOMC Meeting on Wednesday, January 30th.   (If the Fed drops the Funds Rate…mortgage rates may rise).
  • Thursday, January 31 will bring us several economic reports which will indicate inflationary levels such as the PCE and the Chicago PMI.
  • And as next Friday is the first Friday of the month, we will wrap up the week with the Jobs Report.

Again, I highly recommend that you lock in your interest rates for conforming loans and make sure it’s for enough time for your transaction to close.   A possible bright spot:  the conforming loan limit may be increased…no promises but this will be great help for the JUMBO market from $418,000 – $620,000.

Bye for now! 

Update January 24, 2008 at 2:55 p.m.:  I just priced the 30 year fixed conforming at 1% origination/discount…I can barely lock in 5.5% (APR 5.642%) based on my usual criteria for “Friday’s Rates” (which I will be posting tomorrow).   Is it 5 yet?  😉

Fed Funds Rate now at 4.25%

The FOMC announced that the Fed Funds Rate and Fed Discount Rate are both being reduced by 0.25%.   Remember (I can never say this enough) this has no direct impact on your mortgage interest rate EXCEPT for home equity lines of credit which are based on Prime Rate.  If you have a HELOC, your rate will decrease by 0.25%.  Lucky you!

Mortgage rates are based on mortgage backed securities (bonds) and will adjust based on how the markets react to this adjustment.  The 0.25% drop is pretty much what was being anticipated by the markets and has been priced into mortgage rates.   This is why I’ve been urging borrowers to lock in before today and last Friday’s Jobs Report since mortgage rates (bonds) tend to react negatively to inflation.

What will happen now is everyone will be interpreting what the future may hold based on the Fed’s Statement.   Although this cut is what they expected, many are disappointed with the statement:

“Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending…. core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation.”

The closing comment suggests they are prepared to cut again or do what ever they feel is needed:

“The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.”

The Fed has now cut rates a full point since September.  Currently the stock market is reacting negatively.  I will update this post should we see dramatic changes to mortgage rates following this action by the FOMC.   

Ba-Ba-Ba-Benny and the Fed

Aw come on and sing along with me (Benny and the Jets).   Ben just surprised many by dropping both the Fed Funds and the Discount Rate by 0.50%.    It’s too soon to tell how this may impact mortgage interest rates…however it (the Fed Funds rate) directly drops the rate home equity loans are based on to 7.75% (Prime Rate).    You can see by the chart below that waiting on rate reductions from the FOMC to impact long term mortgage interest rates may not be the move for you to make.


Chart compliments of Loan Tool Box

The Fed based this reduction due to ” the tightening of credit conditions has the potential to intensify the housing correction”.   To read the entire press release, click here.