Tag Archives: the-fed

And the Fed…

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With the Fed’s key rates all ready at a rock bottom 0-0.25%, no one anticipates rates to be lowered.  Any reaction will be from the release of their announcement which is anytime. 

Dan Green, one of my favorite mortgage bloggers, is documenting the impact of today’s Fed announcement to mortgage rates via Twitter.   Check it out.

I’ll update this post in a few moments with my two cents following the FOMC announcement.

Update 11:20 am.  

The Fed leaves the Funds Rate unchanged stating that “the economy has weakened furthe”r since their last meeting in  December.   They also reaffirmed their committment to continue buying mortgage backed securities:

“The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve’s balance sheet at a high level. The Federal Reserve continues to 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 the quantity of such purchases and the duration of the purchase program as conditions warrant.”

Click here for today’s FOMC Statement and be sure to follow Dan Green’s reporting on the reaction of mortgage backed securities.

The FED drops the Funds Rate to 1.00%

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The FOMC, during a scheduled meeting, elected to reduce the Fed Funds rate by 0.5% from 1.5% to 1.00%. Unless you have a HELOC that is floating (attached to the Prime Rate) this does not directly impact your mortgage interest rates. However, it will influence mortgage rates based on how traders react (50 basis points is what was expected). If you’re a long time reader of Rain City Guide, you’ve all ready heard this song and dance.

FOMC Press Release

Will St. Patty's Day Bring Us Luck with Conforming Loan Limits?

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By mid-March, HUD is required to publish what they determine to be median home prices which Fannie Mae and Freddie Mac will be using for what the temporary loan limits will be (125% of the median home price). I’m hopeful that Fannie, Freddie and banks are working dilingently NOW on what the guidelines and pricing will be for this new bracket of loans priced from $417,001 to the new temporary limit and that we’re not waiting after the loan limits are announced for lenders to figure out how they’re going to deal with the new loans.

I’m currently working with a couple who are looking at homes priced around $600,000. They could be perfect candidates for the new conforming loan limit. With 20% down, they will have a loan amount of $480,000. Here are a few scenarios I shared with them:

Structuring the mortgage as a jumbo compared to with a conforming first and second mortgage (heloc):

10yr30

I am really favoring the 10 year ARM right now. Ten years is a heck of long time. Picture you and your life 10 years ago…and rhondawitt 1try to imagine your life 10 years from now. Mortgage planning is about selecting the right product that suits your long and short term financial pictures. If you select a 30 year fixed mortgage, yet you keep the home for less than 10 years, you may be losing hundreds of dollars every month. With that said, you cannot put a value on “peace of mind”. If you are going to lose sleep at night because you have an adjustable rate mortgage (that is fixed for ten years) then don’t do it. Go for the long term mortgage. Personally, I would lose sleep over not having the long term savings. It is a choice…YOUR choice. BTW…the photo of me might be closer to 13-14 years ago! 😉

Of course this couple could wait and see what the new loan limits may be…this plan has potential to backfire however. I’m hearing that the add to rate may be anywhere from 0.25% to 1.000% to rate for loans over $417,000. Worse case, the new conforming loan limit would still have rates where our jumbo rates currently are. Plus, we still don’t know what the new limits are. It’s highly speculated that our area will see the limit just shy of $500,000 (speculated being the key word). However if the add to rate is significant enough, then the new limit will make little difference to our current “jumbo” rates.

With the Fed meeting on March 18, 2008 and an anticipated 0.50% rate cut in the works, mortgage rates may very well be higher by that time . The Fed cutting rates typically causes mortgage bonds to react for the worse as it is an inflationary sign. It’s great for your HELOC, not so for your unlocked mortgage rate.

My advise is for my clients to proceed with an approval now. If the new conforming rate proves to be a better scenario for them while we’re in transaction, it’s easy for us to change plans (as long as we’re more than a week from closing).