More on today's interest rate decrease
Just received this email from Dan Klebesadel, a great Los Angeles mortgage lender.
"In what is viewed as an "emergency" move, the Fed funds rate was cut 0.50% in a coordinated effort with other central banks in Europe. We have seen such changes in just the past month. With colossal companies failing and being absorbed overnight, this has resulted in money becoming tighter among financial institutions. This move, following the Fed bail-out, is an attempt at restoring investor confidence freeing up liquidity.
With international investors having had such an appetite for investing in mortgages (up until a year ago), we saw a plethora of money to lend and with so many lenders and brokers pushing exotic programs that ultimately provided the borrower no financial stability, the mortgage crisis is creating financial ripples globally.
Don't fear. Though money is tight for lenders, we are still writing loans; a lot of loans, but the square peg must fit the square hole. Thus, there is little to no leeway for exceptions to printed policy, but FHA is still offering financing with less than 3% downpayment while FNMA and FHLMC are writing loans with 10% down, all up to $729,750.
What will this drop mean to us?
The drop in the short term rates will likely have an instant benefit to those who have variable rates tied to the prime rate (home equity loans), though its effect on long-term mortgage rates (currently in the high 5% range), has yet to be seen. The latest trend we have seen is that mortgage rate movements are tied more and more to the availability of money than to a direct correlation with the bond market movements. Case and point, if we look back to 2004 when rates hit the LOW, the bond yields were not as low as they are today and, but for the lack of liquidity, we should be seeing far lower rates. Hopefully this move will free up more investor interest in lending.
I look forward to what I can do for you next."
"In what is viewed as an "emergency" move, the Fed funds rate was cut 0.50% in a coordinated effort with other central banks in Europe. We have seen such changes in just the past month. With colossal companies failing and being absorbed overnight, this has resulted in money becoming tighter among financial institutions. This move, following the Fed bail-out, is an attempt at restoring investor confidence freeing up liquidity.
With international investors having had such an appetite for investing in mortgages (up until a year ago), we saw a plethora of money to lend and with so many lenders and brokers pushing exotic programs that ultimately provided the borrower no financial stability, the mortgage crisis is creating financial ripples globally.
Don't fear. Though money is tight for lenders, we are still writing loans; a lot of loans, but the square peg must fit the square hole. Thus, there is little to no leeway for exceptions to printed policy, but FHA is still offering financing with less than 3% downpayment while FNMA and FHLMC are writing loans with 10% down, all up to $729,750.
What will this drop mean to us?
The drop in the short term rates will likely have an instant benefit to those who have variable rates tied to the prime rate (home equity loans), though its effect on long-term mortgage rates (currently in the high 5% range), has yet to be seen. The latest trend we have seen is that mortgage rate movements are tied more and more to the availability of money than to a direct correlation with the bond market movements. Case and point, if we look back to 2004 when rates hit the LOW, the bond yields were not as low as they are today and, but for the lack of liquidity, we should be seeing far lower rates. Hopefully this move will free up more investor interest in lending.
I look forward to what I can do for you next."
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