Mortgage Rate News

There has been a lot of scrutiny regarding Fannie Mae and Freddie Mac, the two government chartered mortgage lenders that are the biggest buyers of home mortgage loans in the country. There are worries that the banks might fail, and even suggestions by some that the mortgage loans that the two banks have be divided up and redistributed to Fannie and Freddie according to “good” and “bad”.

But what you may not be hearing much about is the prospect that regular (or conforming) home mortgage loans could become more expensive. The evidence for this is a recent filing with the SEC by Freddie Mac. Every so often companies have to make a filing with the SEC to explain where they are at in their finances, and warn of future changes. The Mortgage Reports Blog cuts through the legalese and double-speak to let you know exactly what Freddie is proposing for home mortgage loans, and how it may affect you:

Loan-level fees, you’ll remember, are mandatory charges on a mortgage. Not closing costs, per se, but an interest rate adjustment to every mortgage application.

In this sense, Freddie Mac’s plan to add new loan-level pricing adjustments is like a tax on borrowing and would mark the third round of such fees since loan-level pricing adjustments were first introduced December 2007.

Mortgage rates used to based on the price of mortgage bonds alone. Today, it’s bond prices plus fees from Freddie (and Fannie). In other words, even if Wall Street mortgage rates fall later this year, Main Street mortgage rates could still rise because of new, mandatory borrowing fees for all mortgage applicants.

It’s not enough that the subprime mortgage market mess has created conditions in which it is harder to get mortgage financing; mortgage lenders are exacerbating the problem by adding new fees into the mix.

Tags: Fannie Mae, Freddie Mac, home mortgage loans, conforming loans,
subprime mortgage, mortgage interest, mortgage loan blog

Rumors are flying that an emergency Fed rate cut could be in the works. While many expect a 75 basis point cut on March 18, the latest interest rate news is that an emergency Fed rate cut may be needed before next week’s scheduled meeting. The last emergency Fed rate cut came just eight days before a scheduled Fed meeting. At which time the Fed cut rates again.

24/7 Wall Street offers this insight on why current measures to stimulate the economy with rate cuts have been unsuccessful:

With oil-based products and gasoline taking more of the consumer dollar, a relief on the credit side would be more than welcome. The problem the Fed has is that most banks are not passing lower rates on to businesses and consumers.

Even though banks are getting lower rates, and they have been getting lower rates with the Fed funds rate at three percent. they still aren’t passing them on. Perhaps the rate cuts will be passed on when the Fed funds rate makes to an expected two percent by the end of April.
In the case of mortgage interest rates, though, it doesn’t matter that much anyway. Last week, mortgage interest rates went up. And an emergency Fed rate — or any Fed rate cut for that matter — is unlikely to change anything.

The reason for this lies in the fact that mortgage interest rates, with their long-term nature, are more tied to 10-year Treasury notes than they are to the short-term Fed funds rate. This means that when inflation goes up (and it is on its way) mortgage interest rates follow the bond rates higher.

If you haven’t refinanced to a fixed mortgage rate yet, you could be in for a bumpy ride.

Tags: mortgage interest rates, mortgage rates going up, home mortgage loan, mortgage loan blog,
credit market pressures, emergency Fed rate cut, Fed rate cut news

While in some case mortgage lenders will go along, at least in the short term, with a Fed rate cut, the truth is that the Fed’s fund rate has little to do with mortgage interest.

Why?

Because mortgage rates are tied more closely to 10 year Treasury note rates. Mortgage interest is a long term rate, while the Fed fund rate is short term. So while there could be some effect on your second home mortgage (especially if it is a home equity line of credit), your main mortgage interest is likely to be unaffected — even if you have an ARM.

With the latest Fed rate cut on Wednesday, the 10 year Treasury note ended up in an interesting position. These bond notes respond to inflation. Long term inflationary pressures, that is. So with this Fed rate cut, inflation could be a problem. And that means that mortgage rates following the long term bond market lead are unlikely to fall anytime soon.

So, your mortgage interest is probably going to be affected only minimally by the latest Fed rate cut. For the most part, other factors will affect what sort of mortgage rates you have to choose from, including marketing expedients for mortgage lenders desperate to draw applications for home loans.

The Fed rate cut will affect other aspects of your financial life, though. Consumer debt (credit cards, etc.) will see lower rates, and cash investments will see lower yields. And while the stock market usually does well with a Fed rate cut, it is in turmoil due to economic concerns.

This Reuters video offers more on the Fed rate cut:

Tags: bond notes, Fed rate cut, home mortgage loan, mortgage lenders,
second mortgage, mortgage interest rates, home equity line of credit