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When the Federal Reserve lowers the Fed Funds Rate, mortgage rates tend to increase, and it's always for the same, few, related reasons:
But rate cuts are just one way that the Federal Reserve can impact mortgage rates; there's more than one color in the Fed's crayon box, after all.
tinHow the FOMC treats the Fed Funds Rate today is only one part of the story. The other part is what the Federal Reserve does to make mortgages feel "safe" to market investors.
One reason why mortgage rates are slightly down this past week is because the Fed has intervened with normal market activity on multiple occasions and with each intervention, the Fed is implicitly or explicitly saying, "We will not let conforming mortgage debt default."
This "guarantee" from the Federal Reserve reduces the risk of mortgage loans sold through Fannie Mae and Freddie Mac. Lower risk = lower rates.
What the Fed says today will be as important as what the Fed does. If the press release reveals a proclivity for guaranteeing additional mortgage debt, expect mortgage rates to fall because mortgage debt will be considered "safer" for investors.
Dan Green (NMLS #227607) is an active loan officer with Waterstone Mortgage. Email Dan ator call 513-443-2020.
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