Snooze and You May Lose!

Rumors have been circulating of the Fed
lowering rates to 4.5% in an effort to stimulate
housing. This has caused many to sit on the
sidelines waiting for the promise of lower interest
rates.

Since the Fed doesn’t actually ‘control’
mortgage interest rates, there is only so much they
can do to lower rates. Each bank independently sets
their own interest rates based on the daily market
and economic conditions, as well as internal factors
such as liquidity and volume control.

The Fed started buying mortgage backed
securities the first week of January and the news of
this drove mortgage rates downward as the promise
of increased liquidity. When you look at the pools of
mortgages they have been buying, however, the
loans are those with rates in the low to mid 6%
range. While this is a smart move on the part of the
Fed, this is not likely to drive mortgage rates lower
any time soon as these actions are having no impact
on the loans being originated at today’s low rates.

The loans the Fed is buying at the higher
interest rates have a high probability of being
refinanced into the current lower interest rate loans
available. This gives the Fed a quick recoup on their
investment, and therefore the ability to continue to
purchase mortgage backed securities for a longer
period of time.

This may very well be the bottom of the market
for interest rates. How much is the opportunity cost
for the consumer who could save $300 per month by
refinancing now, versus waiting another 6 months to
save an additional $50 per month with a lower
interest rate that may never materialize?

~ Courtesy of Wendy Charles, CMPS, LoanCentral LLC