WeeklyBasis 09/18/07: Mortgages Even on Fed Move

The Fed cut two different rates Tuesday, each by 50 basis points (.5%): The Fed-to-bank Discount Rate, and the Bank-to-bank Fed Funds Rate. It’s important for clients to understand that these are not consumer rates, and the only type of consumer mortgage that has a direct correlation to the .5% decrease in the Fed Funds Rate is a Home Equity Line of Credit (HELOC). This is a specific type of 2nd mortgage, and rates on HELOCs will drop .5%. All other mortgage rates are based on trading in mortgage-backed bond markets, which reference Fed rates for influence, but are not directly correlated to moves in Fed rates. Most mortgage rates (excluding HELOCs) rose slightly after the Fed cut. Bond markets were over-bought ahead of the Fed cut, and sold off as investors moved into equities after the cut — when bond prices drop in this kind of trading, bond yields (or rates) rise. This should correct in the coming days, but first the markets have do digest Wednesday’s consumer inflation report. If it comes in lower than expected, rates will improve. If it’s showing inflation pressure, rates will be the same or higher. I will comment more on the impact of Fed moves once they’ve settled in. If you have scenarios to discuss, please let me know. Full doc rates look good. Stated income rates for self-employed borrowers are trading at a wider-than-usual spread over the full doc rates below, but with some advance notice before writing purchase contracts, it’s still possible to place self-employed clients in very competitive stated products too.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.25% (6.39% APR)
5/1 ARM: 6.5% (6.64% APR)
7/1 ARM: 6.625% (6.775% APR)

Jumbo ($417,001 – $650,000) – NO POINTS
30 Year: 7.625% (7.765% APR)
5/1 ARM: 6.5% (6.64% APR)
7/1 ARM: 6.625% (6.775% APR)