Fed cuts rate .75% - but where is the mortgage rate decrease?
Just in from Dan Klebesadel at Wells Fargo:
"Yesterday's Fed Cut of 0.75% was a good sign for stock market investors and for homeowners with adjustable home equity lines of credit, but we saw mortgage rates actually increase a bit yesterday. Viewed as a positive move for economic growth, money flowed into stocks and out of bonds. Remember: in times of economic uncertainty, investors tend to favor the security of government-backed bonds. Conversely, when there are signs that the economic climate is improving, investors prefer stocks and this transference of money causes rates to rise or fall.
Overall, we are seeing a disconnect between the current bond market and mortgage interest rates. By past comparison, we should see rates almost 1% lower than they are now (even more for jumbo loans), but the credit difficulties in the secondary market, as well as investor's loss of appetite for mortgage-backed securities, have rates holding at higher than desired levels.
Monday was also the big day that the pricing was announced for the newly expanded FNMA and FHA loan increase and to me, there was one clear winner….FHA.
The pricing is better in certain circumstances and it is by far the only choice in low downpayment transactions. When comparing fixed loans with 1 point loan fee, a $417,000 conforming loan is priced at 5.625%, and a traditional non-conforming loan is closer to 7.50%, the new FNMA loans fall almost exactly in between at 6.625%. HOWEVER, FHA, whose new limits also go up to $729,750 is priced closer to 6.25%.
Better still is that FHA is exempt from the loan to value cut-backs we are experiencing in declining markets.
2.85% downpayment up to $729,750
Downpayment can be all gift
Credit scoring is far more lenient"
"Yesterday's Fed Cut of 0.75% was a good sign for stock market investors and for homeowners with adjustable home equity lines of credit, but we saw mortgage rates actually increase a bit yesterday. Viewed as a positive move for economic growth, money flowed into stocks and out of bonds. Remember: in times of economic uncertainty, investors tend to favor the security of government-backed bonds. Conversely, when there are signs that the economic climate is improving, investors prefer stocks and this transference of money causes rates to rise or fall.
Overall, we are seeing a disconnect between the current bond market and mortgage interest rates. By past comparison, we should see rates almost 1% lower than they are now (even more for jumbo loans), but the credit difficulties in the secondary market, as well as investor's loss of appetite for mortgage-backed securities, have rates holding at higher than desired levels.
Monday was also the big day that the pricing was announced for the newly expanded FNMA and FHA loan increase and to me, there was one clear winner….FHA.
The pricing is better in certain circumstances and it is by far the only choice in low downpayment transactions. When comparing fixed loans with 1 point loan fee, a $417,000 conforming loan is priced at 5.625%, and a traditional non-conforming loan is closer to 7.50%, the new FNMA loans fall almost exactly in between at 6.625%. HOWEVER, FHA, whose new limits also go up to $729,750 is priced closer to 6.25%.
Better still is that FHA is exempt from the loan to value cut-backs we are experiencing in declining markets.
2.85% downpayment up to $729,750
Downpayment can be all gift
Credit scoring is far more lenient"
I see FHA being the work horse that pulls this lending crisis back to a normal market but have concerns about the overall bond market and interest as well. Who is being cautious now not the people but the lenders.
Reply to this