What a week in the markets. Let's take a moment to analyze what happened. The best news of the week is that Congress has come to the table with an emergency economic plan that raises both the FHA and Conforming limits. The package proposes lifting the dollar amount of loans that are eligible for purchase by Freddie Mac and Fannie Mae and that can be insured by the Federal Housing Administration (FHA). The cap limits for FHA loans, which offer protection to lenders against losses that result from defaults by borrowers, would be raised to $725,000 and would be permanent. The stimulus package proposes raising that cap to $625,000 for twelve months in order to make it easier for buyers to get or refinance mortgages - especially in high-cost regions like California. There has not been word yet on if that will affect Hawaii and Alaska's limits at this time.
As you know, the FED lowered the discount rate by .75% on Tuesday morning before the stock market opened. The market responded by saying "finally"!!! But, the rates only went down on mortgage by .125% that day, and actually went back up on Wednesday to the same rate before the FED lowered the rates. So, the question is, will the rate cut help the mortgage rates? Only time will tell. Remember, the FED funds rate has nothing to do with mortgage rates. Mortgage rates are governed by the price of the 10 year T-Bill on Wall Street. The buyers of these notes dictate what they will pay for these securities and that in turn creates the rates for mortgages to consumers.
The bottom line, rates will continue to go up and down. We can promise you that. If there is one thing I have learned over the past 20 years, don't try to guess the market. Work with today's rates which are doing great!! Also, please let your clients know that we can lock an interest rate for them and if the rate goes down during their transaction, we do have float down policies in place.
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