Mortgage Rates Aren’t Likely to Move Lower
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Mortgage Interest Rates, rate cuts March 18th, 2008Even with a three-quarter-point cut in interest rates today, homeowners shouldn’t hold their breath waiting for their mortgage rates to follow.
If recent history is any guide, the Federal Reserve’s aggressive rate-cutting will have little or no effect on long-term loans to homeowners.
In fact, mortgage rates even have bounced up a bit following some Fed cuts since September 2007.
It’s all because banks continue to be reticent to lend money and investors are especially leery of mortgage-backed securities, the market for which has been shattered by hundreds of thousands of defaults during the subprime mortgage collapse. Instead of lending money, banks are using newfound liquidity brought on by rate cuts and Fed term auctions to boost their balance sheets and pay dividends.
That leaves mortgage brokers doubtful that they’ll catch a break from today’s 75-basis-point cut, which futures trading had suggested would be a full percentage point.
“Anyone who can give you a definitive answer today is going to be guessing” what will happen to mortgage rates, said Alan Rosenbaum, president of GuardHill Financial in New York. “Normally when the Fed reduces 100 basis points you’re going to see rates come down immediately. However, in this situation no one is really sure.”
Tags: Mortgage Interest Rates, rate cuts
