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 Blog News – Week of Sept 29- Oct 3

The “NO” vote turned into a “YES” vote last week… I guess that is the biggest news… and boy did that [cough] stabilize things [cough]. Ughhhhmmmm. Sorry. Congress did approve the $700 billion “Bailout Bill” Friday. Ironically it was not exactly $700B… it was closer to $850B. Well, i mean come on… they had to do something to entice the ‘no’ voters to switch… why not more pork. Really… can you tell the difference between $700B and $850B? $150B doesn’t buy what it used to. [Especially now that they have devalued everyone’s money! Yippeeee.]

Oh, you thought they had that in a “lock Box” somewhere? He he he… naw, the just printed more therefore making the dollar in your hip pocket worth less! Oops.

The uncertainty prior to the vote created huge market swings that ultimately sent the Dow to its worst week since 9-11, while causing similar problems in the mortgage world.

Interest rates got worse for the 3rd straight week.

Taking the congressional vote out of the picture, last week’s technical data would have had rates falling… not going up. Uncertainty is the economic Anti-Christ. Is that too strong? LOL

For example, the nat’l economy lost another 159,000 jobs. This brings the 2008 total to 760,000 lost jobs. This reduces the likelihood of inflation and is normally good for mortgage rates. [When it comes to mortgage rates, inflation is like the 800# gorilla boogie man.] In addition, the dollar had its strongest week ever against the Euro… oh… you didn’t hear that on the news…. huh! Whoduthunkit. These economic events usually attract borrowers to the mortgage market, therefore lowering rates.

Lower rates = Home lovin’ goodness.

Additionally Fannie Mae eliminated one of its mandatory loan fee hikes. This improves mortgage backed-security pricing for buyers, again leading to lower rates.

But, mortgage rates rose didn’t fall last week and that shows how deep the economic uncertainty really ran. [Remember… uncertainty…. booooooo.] And this week, with the bill now passed into law, we would expect the market to turn its attention back to fundamentals. Butttttttt, it can’t.

Unfortunately, there’s isn’t much new economic data for release this week so it is likely the markets will take their cues from the following:

1. The 8 scheduled Fed speakers, including Bernanke on Tuesday
2. Wednesday’s Pending Home Sales report
3. Rumors of a “surprise” Fed Funds Rate cut [you heard it here first…]
   

Regardless of to what markets react, though, be prepared for them to react swiftly and for mortgage rates to dip and spike — often in the same day. Is this the “New World” of mortgage financing? For the foreseeable future…yup.

In other words, a mortgage rate quote from the morning is likely to be “expired” by the afternoon so if you see a rate and payment that you like, consider locking it. It likely won’t last long.