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Are The Fed's Able To Keep Mortgage Rates Down?

Rising Mortgage Rates

The Federal Reserve (Fed's) in trying to bail out the credit crisis have run into a problem: mortgage rates have gone up!

Since September, the Feds have reduced its target for short-term interest rates by 2.25 percentage points to 3%. But mortgage rates are actually rising. I realize that mortgage rates track treasury bond yields but the Fed's monetary policy has focused on improving the credit crunch that including keeping mortgage rates low to help stimulate the housing market. Since September, the average interest rate on a standard 30-year fixed-rate mortgage has had little change from last September and Interest rates on jumbo mortgages are also track close to their September levels.

California Contra Costa Mortgages Loans Bank of America

There are several reasons mortgage rates haven't responded more to the Fed's rate cuts. One is that long-term Treasury yields, which are the benchmark for most mortgage rates, have risen recently for a number of reasons:

Increased concern about inflation as the prices of oil and other commodities soar.
Investor's hesitancy to buy treasury bonds at auction. Investor concerns may include:
- Fear that there may be a Government bail out of "bond" insurers
- Fear of Inflation: inflation erodes the value of a bond.
- Concern from previous bad investments that included "sub-prime" mortgages
There isn't a direct relationship between discount rates and mortgage rates so a monetary policy directed at lowering Mortgage Rates is indirect at best.

As I posted before, the Feds are trying hard to keep us out of a recession, but their policy can back-fire by stimulating inflation.

Also Read:

You can find AJ Nisen on Active Rain at Contra Costa California Mortgages or at Bank of America Mortgage . Call AJ to talk about your Mortgage, Mortgage Rates, Free Credit Report or visit AJ's website to use his mortgage calculator.

Alan 'AJ' Nisen
Mortgage Loan Officer
Email: aj.nisen@bankofamerica.com
http://mortgage.bankofamerica.com/ajnisen
http://www.activerain.com/ajn

Posted by Alan 'AJ' Nisen California Contra Costa Mortgage Officer on 03/01/2008 03:01 PM

Comments (4)

mortgages, loans, rates, inflation, recession

4 Comments on Are The Fed's Able To Keep Mortgage Rates Down?

Interest rates are still reasonable, but the cash to buy keeps creeping up. First time home buyers are having a hard time. FHA limits don't do much in most of our areas.

We were focused on the BofA 95% for a while, but have now started looking hard at FHA. Also, sellers are finally looking at VA buyers again. They'd better. Every other home around here is for sale.

03/01/2008 04:21 PM

by Lenn Harley, Homefinders.com, MD & VA Real Estate

Lenn,
BofA still has 95% (80-15-5), CAP but reduced from 100 to 90% CLTV, ACORN 97% (92% in declining markets) and there is FHA. The word that I have heard is the new FHA limits will be published the 1st week of March. Jumbos and super jumbos seem to be a problem but most clients know that they can refi in the future. Take are. AJ

03/01/2008 09:44 PM

by Alan 'AJ' Nisen California Contra Costa Mortgage Officer (A Large Bank in America)

I have been thinking about whether the Feds will lower their rates again since the inflation is rearing its ugly head. Thanks for your insight!

03/03/2008 08:57 AM

by Lake Norman Real Estate ~ Diane Aurit (RE/MAX at the Lake)

Diane,
Bernanke has made it clear that his primary goal is to make sure that we do not slip into a recession. He also realizes that he must be very careful not to stimulate inflation. Can he do it? I don't believe he can. I see the discount rate coming down in the near term but going back up long term to slow the economy a little and fight inflation. The discount rate affects short term products and most lines of credit (note Mortgage reates track 10, 30 yr bonds for the most part). My recomendation is your clients who need secondary financing to use a fixed rate product and not to use a HELOC as secondary financing. The prime rate will be going up again and so will the HELOC rate. aj

03/03/2008 11:30 AM

by Alan 'AJ' Nisen California Contra Costa Mortgage Officer (A Large Bank in America)

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