The banks are trying to make back some of the billions lost, The Fed rate has little to do with mortgage rates. Fed rates are for short term money loans & mortgages are not short term. The Fed rate is the rate that the banks borrow money. The interest rate on mortgages will always be higher to make money. This question has been asked every day this week,
Current 30 year mortgage rate is about 6.5%. Certainly not high, but it should be lower. The one tear T-bill is at 1.22, so mortgage rates should be in the five’s. The industry has taken such a beating, the investors are very leary and they are making up for losses. It is a very frustrating time to be in this business. Things are slow.
I wouldn’t say they are “up to the roof” at all. They are still affordable. But, banks need to recoup some money from people that stopped paying their mortgages and left the banks with homes that are worth 50% of what is owed on them.
The Fed doesn’t affect the mortgage rates. The FED is the cost of Short Term loans to banks from the Federal Reserve Bank.
To finance mortgages with FED loans, the banks would have to keep renewing the short term loans, which would put the Banks in an ARM position since the FED rate varies so much.
While mortgage rates are higher, they are not “up to the roof”…they have been as high as 15% - 20% within the past few decades. One factor in the moderate rise in mortgage rates is the inability of Fannie and Freddie to buy mortgage backed packages on the market due to a lack of adequate funding. Without this outlet for prime and somewhat below prime mortgages, banks will not make as many mortgage loans, thus cutting supply of mortgages. As with any supply and demand model, a lack of supply compared to demand drives up the cost, in this case, measured by mortgage rates. Even given the Feds latest move, unless Fannie and Freddie can get back into the market and free up mortgage money, rates may not decline significantly (and may even continue to increase).
When the Fed cuts the Fed Funds rate it is really considered an inflation fighting tool…long term rates and bonds hate inflation because they make future values worth less than today’s value so most of the time when fed lowers the rate you will see an increase in mortgage rates. On the positive side, if you have a home equity line or other loan tied to prime you will see a decrease in rate. Hope that helps..from MD!
May 29th, 2009 at 7:49 am
Tammy
The Fed funds do not have any effect directly on mortgage rates but the bonds market does.
I am a mortgage banker in TN & KY
June 1st, 2009 at 2:26 pm
Reginald
The banks are trying to make back some of the billions lost, The Fed rate has little to do with mortgage rates. Fed rates are for short term money loans & mortgages are not short term. The Fed rate is the rate that the banks borrow money. The interest rate on mortgages will always be higher to make money. This question has been asked every day this week,
June 2nd, 2009 at 9:16 pm
Suzanne
Current 30 year mortgage rate is about 6.5%. Certainly not high, but it should be lower. The one tear T-bill is at 1.22, so mortgage rates should be in the five’s. The industry has taken such a beating, the investors are very leary and they are making up for losses. It is a very frustrating time to be in this business. Things are slow.
June 5th, 2009 at 3:08 pm
Maureen
I wouldn’t say they are “up to the roof” at all. They are still affordable. But, banks need to recoup some money from people that stopped paying their mortgages and left the banks with homes that are worth 50% of what is owed on them.
June 6th, 2009 at 2:45 pm
Kathleen
Mortgage rates are not tied to Fed funds. They act more closely with the bond market. 10-year bond specifically for 30 year mortgages.
June 7th, 2009 at 11:48 pm
Laurie
The Fed doesn’t affect the mortgage rates. The FED is the cost of Short Term loans to banks from the Federal Reserve Bank.
To finance mortgages with FED loans, the banks would have to keep renewing the short term loans, which would put the Banks in an ARM position since the FED rate varies so much.
June 8th, 2009 at 2:46 pm
Cynthia
While mortgage rates are higher, they are not “up to the roof”…they have been as high as 15% - 20% within the past few decades. One factor in the moderate rise in mortgage rates is the inability of Fannie and Freddie to buy mortgage backed packages on the market due to a lack of adequate funding. Without this outlet for prime and somewhat below prime mortgages, banks will not make as many mortgage loans, thus cutting supply of mortgages. As with any supply and demand model, a lack of supply compared to demand drives up the cost, in this case, measured by mortgage rates. Even given the Feds latest move, unless Fannie and Freddie can get back into the market and free up mortgage money, rates may not decline significantly (and may even continue to increase).
June 10th, 2009 at 4:21 am
Shawn
When the Fed cuts the Fed Funds rate it is really considered an inflation fighting tool…long term rates and bonds hate inflation because they make future values worth less than today’s value so most of the time when fed lowers the rate you will see an increase in mortgage rates. On the positive side, if you have a home equity line or other loan tied to prime you will see a decrease in rate. Hope that helps..from MD!