Fed Cuts = lower mortgage rates, right?

Mortgage and Lending with Clarion Mortgage Capital, Inc.

   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. On the graph see how the interest rate on the 30-Year Fixed FNMA have been on the rise since the last couple of Fed Rate Cuts. It is often said history repeats itself, right?

Today, the mortgage bonds dipped -135bp, which is the biggest dent in the last two years, as a result of worries of inflationary signs that  experts have seen in the economy, especially with the weak U.S. dollar and the high commodity prices.  Both the oil price and the gold have risen highly against the weak U.S. dollar. Keep in mind that high commodities prices often lead to inflation, which is hostile towards mortgage bonds.

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Garreth Wilcock
Sherlock Homes Frisco - Frisco, TX
Sherlock Homes Frisco
So let me get this straight. If inflation is to go up, then having a higher mortgage rate now will simply be roughly equivalent given that money is becoming less valuable more quickly?
Feb 19, 2008 03:16 PM #1
Joe Davis
Indiana Commercial Realty - Crown Point, IN
We've actually seen some better than expected numbers when putting together the latest loan package for our investment products.  That greatly help boost the cash flow.
Feb 20, 2008 02:49 AM #2
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