My New Blog

     Almost everyone has herd that the mortgage industry is experiencing a credit crunch and that the last two months the Federal Reserves has lowered both its fund rate and the discount rate. The fund rate is where banks can go to the discount window of the Federal Reserve. They can and did interject money into the system this past two months. They offer this to banks to allow more money into the banking system, and lowering the funds rate allows them to borrow this money at cheaper rates. They want to encourage banks who are temporarily experiencing liquidity problems to borrow. This will allow the banks to continue to offer money to the commercial makets ie the secondary market where mortgages are sold. The second is the discount rate. This is what really helps the consumer, however it helps only those loans which are tied to the prime rate. These loans are mostly credit card debt and equity lines of credit. This is considered lowering short term rates, and mortgages are considered long term instruments. Adjustable mortgages are tied to instruments like the Libor, treasury, and others. These are what make adjustable mortgages rates to change, not the prime rate. What this means is that the discount rate doesn't lower mortgage rates for the most part. It is possible that the Fed's could lower short term rates, ie. the discount rate, and the long term rate on mortgages increases. Mortgage rates are more closely inline with the 10 year bond, and the bond markets closely watch commodities like oil etc. along with the US dollar. The bond market looks at these to determine inflation worries. When the economy starts to decline, the Federal Reserve lowers rates to head off a recession, and to make sure there is enough liquidity in the market for banks to loan out money. If the economy slows enough, and the Fed's lower several times, this may eventually bring down long term rates ie. mortgage instruments, as long has inflation worries are in check. 

     What I try to do is monitor the dynamic market forces, as to better suggest to my clients wether or not to refinance, or when is a good time to lock in a rate when they are purchasing a home. I would be happy to discuss this with anyone who would like further discussion. I know this is a brief explanation and there are more variables, but this is a starting point. Please feel free to contact me with questions.

     On my web I also have industry experts give there opinions. I have the daily rate lock advisor which gives a daily market update as to help you make a decision on when to lock. I offer this to may clients, and realtors at no charge. You may visit my web each day to get an informed market update.

Jim Sroka

www.homeloanez.com