So I'm probably not breaking the story wide open when I tell you that the Fed lowered it's key short term rates yesterday. What you may not know was that the best mortgage interest rate opportunities were in the morning in anticipation of the Fed's move. The cut itself was pretty much on target with projections but the ensuing stock rally actually hurt fixed rates in the afternoon. We were able to protect several clients with favorable locks early in the day.
For me the much more encouraging news came this morning with the word that the Office of Federal Housing Enterprise Oversight (OFHEO), which oversees Fannie Mae & Freddie Mac, has unveiled a plan to ease capital requirements. This is projected to pump close to $200 billion into the mortgage market. The freed up money should go toward buying mortgages of struggling homeowners to enable them to refinance into more affordable loans. This appears to be a real solution for borrowers versus some of the political chest-beating that has gone on recently.
Get the facts on what is going on out there... when you read the paper, look at the internet or watch the news don't forget the press' mantra... "If it bleeds it leads"...
There are great opportunities out there right now for the prudent borrower and investor.
Last week, the Fed stepped in once again to help with the liquidity problems the mortgage market is enduring. The result of the Fed action was that rates ended about where they began the week, but the path rates took was a volatile one. This week's economic calendar offers little to influence rates until Friday. So will rates continue to be volatile throughout this week? Read on to find out.
In last week's update, we touched on the Fed's unusual action two weeks ago when they purchased $38 billion of bonds backed by subprime mortgages. Last week, the Fed stepped in again with two more moves designed to help with the liquidity issue the market is facing. First, they cut the Discount Rate a full 50 bps, taking it from 6.25% down to 5.75%. The Discount Rate is the rate at which the Fed lends money directly to commercial banks, credit unions, savings & loans, and to some large mortgage bankers. Remember, this is a different rate than the Fed Funds Rate - which is the rate at which banks lend money to other banks. The Fed Funds Rate is the rate generally discussed in terms of cuts or hikes surrounding normally scheduled Fed meetings. Therefore, the cut last week to the Discount Rate will have no impact on consumer or mortgage rates. Normally the Discount Rate is above the Fed Funds Rate, which is designed to make borrowing money from the Fed a last resort for lending institutions, since borrowing from other institutions would be cheaper. However, with the current liquidity situation, the Fed's move will help provide lending institutions more liquidity at more desirable rates.
Next, the Fed extended the borrowing period on these funds from overnight to thirty days - this could allow some lenders to use this cheaper money for funding home loans, if they are experiencing a liquidity crunch. It will also allow time for the credit markets overall to calm down and level off.
The timid economic schedule week ahead will offer little to sway rates with the biggest news of the week scheduled for Friday. The market will likely be reacting to news events during the week, which will likely cause volatility in the market place - Here we go again!
The bottom line: Keep your eye on the market, it is likely to be another volatile week.
For the fourth week in a row rates ended worse than they began. After last week's overload of economic data this week's calendar will seem almost nonexistent. So will rates finally begin to level or will they continue their trek higher yet again? Read on to find out.
Stocks are continuing to fly high and as investors continue to plow money into the stock market, bonds and rates will likely continue to suffer. To add fuel to the fire, the fed's FOMC minutes released last week, revealed just how worried the Fed is with inflation. The report revealed that the Fed feels inflation is still "uncomfortably high."
To make matters even worse, the Jobs report showed stronger than expected job creations. May added 157,000 jobs to the already tight job market, another negative for bonds and rates.
With little on the radar to pull bonds out of their tailspin, it is likely that rates will continue to move higher.
The bottom line: Expect rates to continue their upward trend throughout the week.
Rates ended the week worse than they began. With a light economic calendar this week, will rates rebound or go even higher? And why did they move higher to begin with? Read on and find out the answers for the questions every originator is asking.
So what happened to rates last week? To explain what happened to rates you just need to remember back to your Economics 101 class. Anyone with that has money invested in stocks can tell you that stocks have been hot lately, real hot. However, investors only have a finite amount of money to invest. Therefore many have pulled money out of bonds to invest in stocks, which means according to the rules of supply and demand, bonds need to offer higher interest rates to attract investors so rates have been forced higher.
So when will it end? Probably not anytime soon. It will take either a pull back in stocks or a very strong report indicating inflation almost non-existent for rates to begin to move lower. And the probability that either of these events will occur this week is slim.
The bottom line: Lock'em if you got'em
Rates ended last week slightly higher than where they began. Of course the big news last week was the Fed meeting, where as expected the Fed chose to leave rates unchanged. This week's economic calendar has important news scheduled for release every day. With the most important report scheduled for Friday. So will rates continue to creep higher this week, or will they began to move lower?
As expected, the major news last week centered around the Fed's action - or non-action. However, reading through the Fed's statement released just minutes after their meeting was concluded, the Fed has seemed to indicate that a rate cut was now more likely than a rate hike. However, the Fed also indicated that inflation is still a concern and before they would consider a rate cut inflation would need to be in check.
There are many indicators of inflation the Fed can rely upon, however the Fed's favorite measure of inflation is the Core Personal Consumption Expenditure Index (PCE) and many analysts believe the PCE Index needs to dips below 2% for a few consecutive months before the Fed will be comfortable that inflation is in check. It just so happens that the PCE report is due out this Friday, which will should ensure an interesting end to the week.
On the world news front, as tempers heat up between Iran and Great Brittan over the kidnapped British sailors, expect the crude oil market to be jittery, as Iran is in the top 4 oil producing countries and any indication that the flow of oil will be interrupted, may cause investors to seek the shelter of bonds, which may help push rates lower again.
The bottom line: World events may help rates improve, but any indication inflation is still thriving will push rates higher, expect a volatile week.
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