Ryan’s Mortgage Blog:
Well the talk of the week is obviously the Fed cutting the target on the key short-term interest rate by half of a percentage point this week to 4.75%. This was a move that proved the Federal Reserve is worried about the Mortgage industry. They also cut its discount rate by another half of a point to 5.25 percent and indicated more cuts may come sooner than later. The stock market welcomed these cuts and jumped up 330 points following the announcement.
These cuts are supposed to help ease some of the worries/problems that nervous banks have had. It is supposed to stimulate more lending/borrowing and help ease some of the tension, but it is not a one-time cure. There are still major credit problems that many people face that aren’t fixable in the short-term. Because of the recent problems with bad loans and foreclosures a new equation needs be formed for the mortgage industry in regards to guidelines. By the feds cutting rates and maybe doing it one more time, this should make money “easier” to get for consumers than it has been over the last several months. BUT banks can’t fall back into lending to “questionable” borrowers. The right equation I am talking about needs to consist of a decent credit score/credit history and a reasonable down payment (or equity for refinances).
There are always two sides to the coin and Randy Plankey from Astoria Federal sent out an email this morning to his clients (mortgage brokers) and I will post a couple of key points so you can see it for yourself. “The rate cuts are turning into a negative for treasuries and mortgages, and rates are going to be up this morning. The fact that the Fed has abandoned the inflation fight in a desperate attempt to buoy the economy is seen as inflationary and weakening the dollar. Stocks are up, and so are commodities prices. The 10yr is up to 4.60% this morning. Consumers over the past several years think they can simply follow core interest rates and the bond market and that makes them ‘smart’ as it relates to their ability to predict where mortgage rates may or may not be on any given day. Because they don’t truly understand market dynamics in general, this particular cycle of liquidity issues and a Fed cut resulting in higher fixed interest rates probably has their collective heads spinning.”
So as you can see this cut may or may not be a god thing depending on your stance or situation.
If you have any questions regarding your current mortgage I would gladly answer any questions you have. You can reach me at 805-540-0866 or RBaker@PeregrineLending.com
Ryan’s Mortgage Blog: