Mortgage Question for MortgageMan
- Thread starter FamilyMan
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T
TFinalshot
Guest
I'm not MM, but the answer is NO. . .
CAelknuts
Moderator
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I"m not mortgageman, but what happened is fairly common. When the Fed made their reduction, mortgage interest rates got worse. That isn't all that unusual, particularly after a big improvement the day before and the Fed's cut today.
Now, did anyone take advantage of my advice to lock in yesterday if you had a mortgage in process? If you did, you hit the bottom, at least for the time being.
Now, did anyone take advantage of my advice to lock in yesterday if you had a mortgage in process? If you did, you hit the bottom, at least for the time being.
FullCurlHunter
Active Member
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- 171
The answer is no. Further, Adjustable rate mortgages (Arm's) became less expensive (ie...lower rates) but fixed mortgage rates actually increased slightly as they are tied to the bond market. Bond prices increase as interest rates decrease so the cost to lend fixed mortgages rise slightly.
Bernanke cut the federal funds rate which is the cost for banks to borrow from one another to make their daily quotas of incoming assets equal or as close as possible to outgoing assets on a daily basis. This indirectly affects mortgage rates in that banks have to borrow from one another, if it becomes less expensive they can offer better rates to their customers particularly in mortgages as of recently to spur mor ebusiness and economic confidence. This is why the fed often does this. If it costs less to borrow, they can afford to lend at lower rates. Lastly, it depends on the type of mortgage how a rate cut affects that particular mortgage.
What interests me is the number of foreclosures that are happening as of lately. People are getting into mortgages that they cannot afford and the federal reserve is simply helping people assume even more debt in that lower interest rates can help joe blow get into an even more expensive home for the same monthly payment...
However, rate cuts do spur the market in times of looming recessions. I like the market up!!
Just some rambling ideas for anyone interested!
Bernanke cut the federal funds rate which is the cost for banks to borrow from one another to make their daily quotas of incoming assets equal or as close as possible to outgoing assets on a daily basis. This indirectly affects mortgage rates in that banks have to borrow from one another, if it becomes less expensive they can offer better rates to their customers particularly in mortgages as of recently to spur mor ebusiness and economic confidence. This is why the fed often does this. If it costs less to borrow, they can afford to lend at lower rates. Lastly, it depends on the type of mortgage how a rate cut affects that particular mortgage.
What interests me is the number of foreclosures that are happening as of lately. People are getting into mortgages that they cannot afford and the federal reserve is simply helping people assume even more debt in that lower interest rates can help joe blow get into an even more expensive home for the same monthly payment...
However, rate cuts do spur the market in times of looming recessions. I like the market up!!
Just some rambling ideas for anyone interested!
Wiszard
Long Time Member
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- 11,074
The thing that has changed in the real estate business other than a reduction in prices is that money is nearly impossible to come by if you don't have a minimum on 5% to put down. I've written more offers in the past year where the buyers are requiring the sellers to pay up to 6% towards down payment of the property. It's an FHA loan. But you think about it....if you have a great credit score and make excess of $120,000 per year, you can't be approved for 100% financing. However, if you make less than $60,000 and not so stellar credit and have no money to put down, you can be approved for an FHA program. Can someone explain this to me.
Steve
Steve
M
MortgageMan
Guest
Familyman - Sorry I am several days late on this. There was a great article that came out about a month ago that explained the fed rate cuts and relativity to mortgage rates extremely well. Take a look at it. Attached is the link to the article.
CAelknuts - I ended up locking today which worked out better!!
http://www.hismortgageman.com/info_03/page_1.rad
Here is the article as well:
Why Fed Rate Cuts Do Not Equal Lower Mortgage Rates
By Barry Habib, Contributing Editor to CNBC.com
Last Updated: February 4, 2008
The Federal Reserve has been on a rate cutting spree once more. Many mortgage applicants are calling their mortgage representative and expecting a lower interest rate. Others who have been waiting to refinance are puzzled as to why mortgage rates have not moved lower during the recent five Fed rate cuts. This is difficult to explain to consumers who have watched a 2.25% reduction by the Fed with very little benefit in mortgage rates.
Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years while a rate set by the Fed can change from one day to another.
It is often said history repeats itself. And if history is any teacher, we can learn from what happened to mortgage rates the last time the Federal Reserve was in a rate-cutting cycle.
The last time the Fed was in a lengthy rate cutting cycle was back in 2001 from January 3, 2001 to December 11, 2001. In the span of 11 months, they cut the Fed Funds rate 11 times with eight of those cuts by 50bp. This resulted in a total of 475bp or 4.75% in short-term interest rate cuts taking the Fed Funds Rate from 6.00% down to 1.75%. Now most uninformed people would naturally think because the Fed cut rates by so much during this time that mortgage rates would follow suit and trend lower as well. Not so. Mortgage rates actually moved higher during this time of significant rate cuts because inflation, the arch enemy of bonds, gradually rose.
Now let's take a look at what happened with the Fed?s most recent cutting cycle, the first since 2001. On September 18, 2007 the Fed cut the Fed Funds Rate by 50bp. The mortgage bond market briefly enjoyed a ?knee-jerk? reaction to the Fed move by closing higher that day, but lost 140bp over the following two sessions. Then on October 31, 2007 the Fed lowered the Fed Funds rate by 25bp. The mortgage bond market responded by losing 78bp over the following five trading days. On December 11, 2007 the Fed once again lowered rates by 25bp and the mortgage bond market lost 88bp in the next three days. This past month, the Fed delivered a surprise 75bp rate cut on January 22, 2008 and mortgage bonds lost a whopping 144bp in just 2 days. Eight days later and as widely expected, the Fed cut rates by 50bp and mortgage bonds had little reaction ? but, were unable to recover the enormous pricing loss seen back on Jan 23, the day after the surprise 75bp cut.
Please refer to the Table below.
Fed Rate Cut Date
Rate Cut Size
MBS Pricing Change
09/18/2007
50bp
-140bp in 2 days
10/31/2007
25bp
-78bp in 5 days
12/11/2007
25bp
-88bp in 3 days
01/22/2008
75bp
-144bp in 2 days
01/30/2008
50bp
little changed
CAelknuts - I ended up locking today which worked out better!!
http://www.hismortgageman.com/info_03/page_1.rad
Here is the article as well:
Why Fed Rate Cuts Do Not Equal Lower Mortgage Rates
By Barry Habib, Contributing Editor to CNBC.com
Last Updated: February 4, 2008
The Federal Reserve has been on a rate cutting spree once more. Many mortgage applicants are calling their mortgage representative and expecting a lower interest rate. Others who have been waiting to refinance are puzzled as to why mortgage rates have not moved lower during the recent five Fed rate cuts. This is difficult to explain to consumers who have watched a 2.25% reduction by the Fed with very little benefit in mortgage rates.
Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years while a rate set by the Fed can change from one day to another.
It is often said history repeats itself. And if history is any teacher, we can learn from what happened to mortgage rates the last time the Federal Reserve was in a rate-cutting cycle.
The last time the Fed was in a lengthy rate cutting cycle was back in 2001 from January 3, 2001 to December 11, 2001. In the span of 11 months, they cut the Fed Funds rate 11 times with eight of those cuts by 50bp. This resulted in a total of 475bp or 4.75% in short-term interest rate cuts taking the Fed Funds Rate from 6.00% down to 1.75%. Now most uninformed people would naturally think because the Fed cut rates by so much during this time that mortgage rates would follow suit and trend lower as well. Not so. Mortgage rates actually moved higher during this time of significant rate cuts because inflation, the arch enemy of bonds, gradually rose.
Now let's take a look at what happened with the Fed?s most recent cutting cycle, the first since 2001. On September 18, 2007 the Fed cut the Fed Funds Rate by 50bp. The mortgage bond market briefly enjoyed a ?knee-jerk? reaction to the Fed move by closing higher that day, but lost 140bp over the following two sessions. Then on October 31, 2007 the Fed lowered the Fed Funds rate by 25bp. The mortgage bond market responded by losing 78bp over the following five trading days. On December 11, 2007 the Fed once again lowered rates by 25bp and the mortgage bond market lost 88bp in the next three days. This past month, the Fed delivered a surprise 75bp rate cut on January 22, 2008 and mortgage bonds lost a whopping 144bp in just 2 days. Eight days later and as widely expected, the Fed cut rates by 50bp and mortgage bonds had little reaction ? but, were unable to recover the enormous pricing loss seen back on Jan 23, the day after the surprise 75bp cut.
Please refer to the Table below.
Fed Rate Cut Date
Rate Cut Size
MBS Pricing Change
09/18/2007
50bp
-140bp in 2 days
10/31/2007
25bp
-78bp in 5 days
12/11/2007
25bp
-88bp in 3 days
01/22/2008
75bp
-144bp in 2 days
01/30/2008
50bp
little changed
FamilyMan
Very Active Member
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- 1,530
Thanks for the article MM. Guess I will have to continue to wait it out. My wife wants us to refinance so that we have a little breathing room in our monthly budget, but I have to wait until the 30-yr fixed rate gets down around 5.25% for it to make sence for me.
Mark
Mark
M
MortgageMan
Guest
Well today is almost your day. It wouldn't cost much to buy it down to that right now if your loan to value is right. Rates are some of the best we have seen right now.
