Interest Rates may have hit bottom according to the Federal Reserve

The fed made it's quarterly speech yesterday. It appears they are taking the stance of no further rate cuts. The market is now on its own. If you are waiting for interest rates to go any lower, they wont. If you think Obama is going to win the election you better refi now. I don't think interest rates are going to go any lower at this point.

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Why Federal Reserve Rate Cuts wont help you

The Federal Reserve cut their discount rate to lenders by 75bps this week. Notice that I said to lenders and not consumers. Rates did not drop by .75% for mortgages. They went down about .25%. The only group that really benefits from this type of activity are the financial institutions. The move really allows lending institutions to make more money to try and sure up any liquidity issues.

Don't be lured by sneaky advertising trying to make you think that mortgage interest rates have dropped like a rock. The truth is that they haven't. All that I am saying is Caveat Emptor.

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The Fed endorses new rules to halt shady lending

The Federal Reserve endorsed new rules today that would give consumers taking out new home mortgage new protections from dishonest lenders. The proposal is expected to apply to new mortgage loans made by all lenders which would include brokers and banks. The plan is expected to be finalized sometime next year. The Fed is proposing:

1. Forcing lenders to make sure that subprime borrowers set aside reserves for taxes and insurance.

2. Taking away loan programs that do not require proof of income.

3. Prohibiting lenders from failing to consider a borrowers ability to repay a mortgage.

4. Restricting lenders from penalizing specific non prime borrowers with low income or bad credit - who pre pay their mortgage early. This would only apply to loans.

“Unfair and deceptive acts and practices hurt not just borrowers and their families, but entire communities, and indeed, the economy as a whole,” said Federal Reserve Chairman Ben Bernanke. He also added “They have no place in our mortgage system.

The Feds response has taken on greater importance given the subprime meltdown in the credit and housing markets. This crisis has raised the odds that the economy might be he headed for a recession.

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Federal Reserve Myth about Interest Rates

Just because the Fed cuts the Fed Funds Rate, your interest rate will not necessarily follow. Mortgage interest rates on first mortgages have more to do with how the stock market is doing that what the Federal Reserve is doing. For instance, the Fed cut their rate by 1.25% in 2008 so far. If this had translated across the board to mortgage rates, you would be able to get a mortgage for under 5%. This is not the case however, rates are closer to 6.5% now. If you have a second mortgage, you have probably noticed that your rate has dropped. The fed rate is tied into the prime rate of interest which home equity lines or heloc mortgages are tied into.

You gotta think that someone is making money off of this. I can tell you that it is not the little guy. Do buy into bank advertising that rates are down since the Fed cut rates. The reality is they are not.

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