The Fed just slashed rates and I have aggressive programs to suit any situation.  So, don’t miss out.  In today’s market, no one can predict what will happen a month from now.  If you’ve thought about a refi, or consolidating – now’s the time. 

Today, October 29th the Federal Reserve slashed the federal funds rate rate by a half of percent and starting distributing the funds from the billions in the the financial rescue package.  I have offered you more explanation below but as you read on please remember that the federal funds rate has not been lower since 1958 when Eisenhower was President.  This interest rate in which banks charge each other for overnight loans has been driven down to 1 percent as we saw during the huge refinance boom in 2003 and 2004.

You have to hurry!  Rates like this won’t be around forever.  If you are in the position to refinance or make the new home purchase, call me today.

Robert H. English, Broker
President, Texas Mortgage Concepts
Lending Integrity Seal of Approval Recipient
President, Central Texas Association of Mortgage Brokers
(512) 687-4040
Broker License 72707

 

Robert on the Federal Reserve and Mortgage Rates

Understanding What Causes Interest Rate Movement

Consumers are often misled when it comes to the subject of the Federal Reserve and how it affects mortgage interest rates. Often the media is the culprit causing the confusion. In the last few years, the Fed has taken action that caused mortgage interest rates to move in a direction other than what consumers expected, because the media provided weak reporting on the subject.

The Federal Reserve affects short-term interest rate maturities, the Fed Funds rate, and the Overnight Lending rate. These factors have a direct impact on the Prime rate. If you took only this into consideration, you may mistakenly conclude that changes made by the Fed will cause a similar movement in mortgage interest rates. However, mortgage interest rates are dictated by the trading of mortgage-backed securities, which trade on a daily basis. The real dynamic at the heart of interest rate movement is the relationship between stocks and bonds.

Stocks and bonds compete for the same investment dollar on a daily basis. There is literally only so much money to be invested. When the Federal Reserve feels that interest rates need to be decreased in an effort to stimulate the economy, this reduction in rates can often cause a stock market rally. When the market becomes bullish, the money to invest in stocks comes from the selling of mortgage-backed securities.

Unfortunately, selling mortgage-backed securities to fuel stock market rallies causes interest rates to go up, not down. Historically, there have been many times when the Federal Reserve has increased interest rates. Stocks then sell off in fear that the increase will affect corporate profit margins, and the liquidated stock assets need a place to park until the next rally comes along. The safe haven is found in mortgage-backed securities which cause mortgage rates to drop.

The daily ebb and flow of money is what matters most when it comes to the movement of mortgage interest rates. I make it a point to continuously monitor interest rates for my clients, and advise them of opportunities to manage their mortgage debt at a better rate. This is the foundation of my business model as a Trusted Advisor.

Robert on the Federal Reserve and Inflation

Guiding the US Economy

President Woodrow Wilson signed into law the Federal Reserve Act in 1913, creating the Federal Reserve, the nation's central banking system. The Federal Reserve, or Fed, has also been called "the gatekeeper of the US economy" because of its unique power to influence US financial and credit markets.

Comprised of seven presidentially-appointed Board of Governors; the Federal Open Market Committee; 12 Federal Reserve Banks; and private U.S. banks and advisory councils, the Fed's mandate is "to promote sustainable growth, high levels of employment, stability of prices to help preserve the purchasing power of the dollar, and moderate long-term interest rates." In other words, the Fed's job is to regulate the nation's financial institutions while simultaneously keeping inflation in check.

To accomplish this important yet difficult task, the Fed studies economic indicators, creates, and then implements monetary policy - its specific plan of action or "target" for the economy - based on its findings. And while there are many tools at its disposal, the Fed has three main instruments of monetary policy: open market operations, interest rates, and reserve requirements, all of which can impact the mortgage industry.

Open market operations, the principal tool used by the Fed in its monetary policy, consist of the buying and selling of U.S. government and mortgage-backed securities (treasury bonds, notes, and bills) on the "open market." Basically, the Fed buys when it wants to increase the flow of money and credit, and sells when it wants to reduce it.

The Fed also controls two important interest rates: the discount rate and the fed funds rate. The discount rate is the interest rate charged by Federal Reserve Banks to commercial banks and other eligible financial institutions on short-term loans. The Federal Reserve Banks offer three discount window programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate. Experts say that changes in the discount rate can serve as a clear announcement of a change in the Fed's monetary policy. These changes are important because they can impact lending rates for banks and interest rates for the open market.

According to the Federal Reserve, the fed funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. Like the federal discount rate, the fed funds rate is another tool the Fed can use to control inflation and other interest rates. This interest rate is often a source of intense speculation whenever the Federal Open Market Committee meets, creating uncertainty that can move the financial markets as well.

Finally, think of reserve requirements, the last of the Fed's main monetary policy instruments, as the cash deposit requirement for a secured credit card. Reserve requirements represent the specific portion of deposits that banks are obligated by law to keep in non-interest-bearing funds at a Federal Reserve Bank, typically 10%. Consequently, as banks attempt to stay as near to the reserve limit as possible without dropping below, they constantly lend money back and forth to each other. The Fed, interpreting signs of inflation in its economic indicators, may choose to reduce the amount of reserves available to banks by slowing the selling of securities. Generally, this causes interest rates to rise, the economy to slow, and inflation to slow with it. The reverse is generally true when indicators suggest a slowing economy or deflation.

If you any questions about the Federal Reserve, inflation, interest rates, or any of the topics discussed in this piece, please don't hesitate to give me a call. The Fed's monetary policy is not only fascinating, you also benefit greatly from understanding its impact on the financial and credit markets.