Many people believe that when the Federal Reserve lowers their Fed Funds Rate .5%, that the 30 year mortgage rate will be .5% lower as well.  For instance, before the fed came out and lowered the Fed Funds rate this week, a client of mine locked his rate on a 30 year mortgage at 6%. The news comes out about the Fed lowering their rate a .5% and he immediately calls me to see if we can cancel that lock request because he wants to get 5.5% instead.
 
The truth is that although the Fed lowering the Fed Funds rate always makes the headlines, everyone in the business should know that any direct correlation between overnight rates and 30-yr mortgage rates is very little (especially in the last two business days) Eventually, yes, they tend to move in the same direction, but not right now. Check out this chart of the Federal Funds vs. Prime Rate & Mortgage rates.
 
 
 
The Stock Market has been falling off a click but mortgage rates haven't gone lower..why?
As you may or may not know, when the stock market goes lower, mortgage rates usually get better. That's because as investors sell their stock, they usually put that money into a safe place and the safest place perceived by many investors is in the U.S. treasury market. As the demand for the U.S. treasuries goes up, the yield that the government has to pay on those bonds goes lower and since the yields on 10-year and 30-year Treasury securities are typically used to set long-term mortgage rates, we see mortgage rates go lower as well.

Well as you've probably noted, the stock market has been falling of a cliff lately and mortgage rates have actually gone up! In the past 5 days, the Dow has dropped from approx 10,500 to as low as 8000. This would lead you to believe that all of the money from selling stocks would be invested in Treasury securities and that the yield on the 10 year treasury would go lower. Instead, in the same 5 day period, the yield went from as low as 3.4% to 3.9% which is a HUGE jump in such a short period of time.
 
Unfortunately, it seems that the traditional flight to quality that we are used to seeing has disappeared and it appears that investors are parking money on the sidelines until the markets stabilize.

Fabio Fornaro
Mortgage Banker
516-353-5501

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