Fed Drops tthe Fed Funds Rate by .75%

The Fed just lowered the Fed Funds Rate .75% and the Discount Rate .75%. This results in the following current rates:

Discount Rate 2.5%
Fed Funds Rate 2.25%
LIBOR 2.56%
Prime 5.25%

How does the Fed affect mortgage rates?Well, if you have a home equity line of credit based on Prime or short term ARMs based on LIBOR, you should see an immediate reduction in your interest rate in the coming weeks. However, if you are considering a fixed rate loan or longer term ARM with a fixed period of 3, 5, 7 or 10 years, rates on those types of loans are not directly related to the Fed. Instead, these rates are closely tied to the Mortgage Backed Securities that trade on the bond market. As typically seen long term mortgage rates spiked on the news. The financial markets are extremely volatile and most likely mortgage rates will continue their roller coaster ride; advise is to set a target rate and lock when it is available.

Paul Cantor helps clients make informed decisions regarding their finacil needs and may be reached at TrustMor Mortgage Company on the web at www.PaulCantor.com or by phone at (804) 433-1500.

2007 - What a Year

Financial market history will show 2007, as the year of the Mortgage Market Meltdown, with a similar impact as t that of the Savings and Loan Crisis of the 1980s and the Dot Com bubble of 2001. Collateral damage, mortgage market meltdown, subprime crisis, credit crunch, distressed debt, ratings downgrades, and rate freezes are terms that we’ve been seeing hearing and reading in the mainstream news. We have also been hearing for about a year from many in the media and from some economists that the U.S. economy is going into recession. So far it has been very resilient to the housing problems and it has proven the gloom and doom " proponents wrong. The unemployment rate remains below 54% and GDP continues to grow. Watch out for inflation to rise as oil prices are near the $100 per barrel level, a weak US dollar combined with $500 million in subprime mortgage resets that are coming in 2008. Some economists feel the economy will continue to grow as a whole, albeit at a slower pace, as individual sectors or industries will have their own compartmentalized recession.. Meanwhile the press continues to create a self fulfilling drastic collapse of home values, when most markets are not experiencing any or very slight reduction in home prices.

Some in the government believe that they should get involved and interfere with the free market. This is bad policy. If the government sets a precedent that they will cut the returns investors of mortgage backed securities then much of the incentive for making such investments will be eliminated. This will translate significantly less mortgage products available a higher costs for those still available. Furthermore some want to grant a government agency the right to dictate underwriting guidelines. Time and time again it has been shown that the free market will provide the most efficient, lowest cost, lowest hassle product. The government should not get involved in restricting returns on existing investments or dictate underwriting standards.

Most agree that the real estate, mortgage and financial markets will slowly return to some sort of normalcy in the next ten to eighteen months. Until this time it is even more important that those looking to purchase or refinance a home work with a local, knowledgeable mortgage professional and to call on that loan officer early on in the process.

Wishing the mortgage market a better 2008.