18 Feb 10 Fed Hikes Discount Rate and Mortgage Rates Rise
Mortgage Rates Pulse announced that the Federal Reserve increased the discount rate today and mortgage rates rose almost immediately. This is the rate at which banks lend to each other. When banks stopped lending to each other overnight altogether in the fall of 2008, discount window for home mortgage loans became even more crucial. The Fed even narrowed the penalty banks paid for using discount window money, moving the discount rate closer to the Federal funds rate during the crisis.
According to mortgage executive, Bryan Dornan, “Clearly, the Fed is signaling a change in direction for interest rates.” Dornan continued, “Now that the Fed is raising rates, expect mortgage rates to begin retreating upwards.” Now that the crisis has blown over, the Federal Reserve wants things to get back to normal.
Late Thursday afternoon, it surprised the markets by raising the discount rate it charges though its emergency window to 0.75% from 0.50% while keeping its targeted Federal funds rate at between zero and 0.25%. The change will take effect on Friday. Meanwhile, the duration of the mortgage loans will revert to the normal overnight period from 30 days come mid-March. Though many thought the Fed was headed in this direction, most everyone thought it wouldn’t act until its next Open Market Committee meeting next month. See the original post online at > Fed Reserve Raises Interest Rates.
08 Jan 10 Will the Fed Let the Mortgage Market Walk?
Many mortgage industry insiders believe the Federal Reserve will take their hands off the housing sector in 2010, when the central bank enables mortgage market to stand on its own two feet. The Fed is unlikely to step in again after its bad credit mortgage buying program devised at the height of the financial meltdown expires. That would take a renewed crisis, like a sudden and destabilizing hike in mortgage interest rates.
Besides conventional and FHA mortgage rates, there are other impediments to a fresh round of mortgage-backed debt purchases, including the Fed’s desire to keep inflation expectations under control. One of the reasons the Fed capped its bond-buying program, which included more than $1.4 trillion in mortgage-related securities and $300 billion in Treasury debt, was the perception that the central bank was “monetizing” federal deficits printing money to keep the government solvent. This latent fear, prevalent in financial markets and reflected in the elevated price of gold, has the potential to turn more than $1 trillion in dormant excess bank reserves into a runaway rise in prices, analysts say.
Barring a double-dip in housing, however, Fed officials are unlikely to meddle. Their reluctance to intervene anew has many roots. For one thing, it would signal a policy about-face that could adversely affect markets as investors reassess what they believed was an improving economic outlook. > Read the original article online.
