The FED rate cut and… okay, I’ll say it… apocalypse

Sooooo, [I thought i would start with something other than ‘okay…’ LOL] The FED made an “emergency rate cut” yesterday, dropping the Fed Funds Rate by one half-percent to 1.500%. What you care about, is the PRIME rate dropped to 4.500%… this is what HELOCs and credit card rates are based on… yeah I know… good news, right? I mean, the move is meant to stimulate the U.S. economy… isn’t it?

When the Federal Reserve changes the Fed Funds Rate, it often takes 9 months for the changes to work their way through the economy so this is not an immediate realization of change, but apparently the FED felt it had to do it and do it quick. Emergency meetings are relatively rare.

On a broad scale, therefore, we won’t know if the cut truly “worked” until thew summer of next year.

But, as it relates to ‘we the people’ in general, the rate cut spurred two instantaneous changes.

1. Credit cards and HELOCs will be more affordable as I stated before,
2. but the second change is that mortgage rates are rising.

The Fed’s moves have sparked optimism in some corners of Wall St. and money is now flowing into the stock market at the expense of bonds… or is it the other way around. My gosh, my head is spinning… and I watch this intently every day. You better sit down.

As always, mortgage markets and mortgage rates remain in turmoil. Therefore, rates are subject to change… uh… a lot… anddddd frequently. Did I mention frequently? If you see a rate and payment you like, be ready to commit to it because it likely won’t last long. Have the nerve to PULL THE TRIGGER!

(Image courtesy: USA Today)

Mortgage Chili: Last week’s leftovers and what’s to come…

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The U.S. Treasury is the biggest reason why most conforming mortgage rates increased by a half-percent.

Hank Paulson’s [Secretary of the Treasury] government group helped to restore investor confidence that had steadily eroded from concern to fear since July 2007, before succumbing to outright panic last week.

Wall Street nerves were so frayed that at one point Wednesday, yields on government bonds were actually in the negative; investors were paying the U.S. government to hold and protect their money in exchange for a guaranteed loss of investment.  No Joke!

After the Treasury’s interventions, however, a sense of normalcy returned to Wall Street…  money poured back into stocks… siphoned from the bond market and that pushed rates higher…. again.

This week, OMG, it’s anybody’s guess what will happen. 

From a data perspective, it’s light — there’s Existing Home Sales, New Home Sales, and not much else.  From a policy perspective, however, the week is heavy: 

• Congress is expected to authorize “hundreds of billions” for market support… $700 B is the discussion.
• Ben Bernanke and Hank Paulson will testify before the Senate Banking Committee
• 7 members of the Fed are making public appearances

With so much rhetoric, it’s difficult to predict how mortgage rates will perform this week.  The stock market may be the best predictor of rates.

If stocks are up, risk-taking is back in vogue and the bond market should suffer, pushing mortgage rates higher.  By contrast, if traders stay clear of stocks in search of safer investments, mortgage rates should fall.

(Image courtesy: Wall Street Journal)