Archive for Federal Reserve
Lake Geneva Real Estate – The Fed Starts A 2-Day Meeting Today. Make A Strategy.
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The Federal Open Market Committee begins a 2-day meeting today in the nation’s capitol. It’s the group’s third of 8 scheduled meetings this year. Mortgage rates are expected to change upon the Fed’s adjournment.
Led by Chairman Ben Bernanke, the FOMC is a 12-person, Federal Reserve sub-committee. The FOMC is the group within the Fed which votes on U.S. monetary policy. “Making monetary policy” can mean a lot of things, and the action for which the FOMC is most well-known is its setting of the Fed Funds Funds.
The Fed Funds Rate is the overnight interest rate at which banks borrow money from each other. It’s one of many interest rates set by the Fed.
However, one series of interest rates not set by the Fed is mortgage rates. Instead, mortgage rates are based on the prices of mortgage-backed bonds and bonds are bought and sold on Wall Street.
There is little historical correlation between the Fed Funds Rate and the common, 30-year fixed rate mortgage rate.
As the chart at top shows, since 1990, the Fed Funds Rate and the 30-year fixed rate mortgage rate have followed different paths. Sometimes, they’ve moved in the same direction. Sometimes, they’ve moved in opposite directions.
They’ve been separated by as much as 5.29 percent at times, and have been as near to each other as 0.52 percent.
Today, that spread is roughly 3.65 percent. It’s expected to change beginning 12:30 PM ET Wednesday. That’s when the FOMC will adjourn from its meeting and release its public statement to the markets.
The FOMC is expected to announce no change in the Fed Funds Rate, holding the benchmark rate within in its current target range of 0.000-0.250%. However, how mortgage rates in and around Lake Geneva respond will depend on the verbiage of the FOMC statement.
In general, if the Fed acknowledges that the U.S. economy as in expansion; growing from job growth and consumer spending, mortgage rates are expected to rise. If the Fed shows concern about domestic and global economic growth, mortgage rates are expected to fall.
Any time that mortgage markets are expected to move, a safe play is to stop shopping your rate and start locking it. Today may be one of those times.
What’s Ahead For Lake Geneva Real Estate Mortgage Rates This Week: March 12, 2012
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Lake Geneva mortgage markets were mostly unchanged last week despite a series of positive developments. In addition to Greece successfully reaching a deal with its private creditors, the U.S. economy turned out strong reports — most notably with respect to Non-Farm Payrolls.
In February, the U.S. economy added 227,000 new net jobs and the figures from December and January were revised higher by an additional 61,000. It marked the 16th straight month of job gains nationwide.
The Unemployment Rate held unchanged at 8.3%.
Conforming Lake Geneva mortgage rates improved slightly last week and mortgage rates continue to hover near all-time lows.
According to Freddie Mac, the average 30-year fixed rate mortgage nationwide is now 3.88% for Lake Geneva real estate mortgage applicants willing to pay 0.8 discount points and a full set of closing costs.
1 discount is equal to 1 percent of your loan size.
Freddie Mac also reported the 15-year fixed rate mortgage at its lowest level in history. The average 15-year fixed rate mortgage fell to 3.13% with an accompanying 0.8 discount points. This is more a full percent lower as compared to March 2011.
This week’s big event is the Federal Open Market Committee’s second scheduled meeting of the year. Whenever the FOMC meets, mortgage rates can change in a hurry.
The FOMC is a subcommittee within the Federal Reserve, the U.S. government’s monetary-policy making group. Since 2008, the Federal Reserve has held its benchmark Fed Funds Rate near 0.000%. It’s not expected to raise that rate Tuesday. However, just because the Fed Funds Rate won’t change, that doesn’t mean mortgage rates won’t.
This is because the Fed doesn’t set mortgage rates, but it does influence them. Market will read the Fed’s post-FOMC press release Tuesday for hints of new policy or economic growth. If the statement shows more optimism for the economy than expected, mortgage rates are expected to rise.
Conversely, if the Fed shows pessimism for the U.S. economy, rates are expected to fall.
Other economic events this week include the releases of Retail Sales, Producer Price Index, and Consumer Price Index; plus three high-profile treasury auctions.
Banks Start To Loosen Up In Underwriting
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After a half-decade of tightening mortgage guidelines, banks are starting to “loosen up”.
The Federal Reserve conducts a quarterly survey of its member banks and, last quarter, not a single responding bank reported having tightened its mortgage guidelines for prime borrowers.
A “prime borrower” is defined as one with a well-documented credit history, high credit scores, and a low debt-to-income ratio.
53 banks responded to the Fed’s survey and none said that mortgage guidelines “tightened considerably” or “tightened somewhat” between September and December 2011; 50 said that guidelines remained “basicaly unchanged”; 3 said that guidelines “eased somewhat”.
Mortgage applicants sometimes remark that the mortgage approval process can be challenging. Last quarter’s Fed survey hints that looser standards are coming.
Not since before the recession have banks lowered mortgage approval standards like this and it bodes well for this year’s Lake Geneva housing market. Real estate agents report that 1 in 3 home sale contracts fail with “declined mortgage applications” as a leading cause.
Looser mortgage lending standards should mean more home loan approvals for buyers, and fewer contract cancellations. This can spur the housing market forward.
Make note, though. “Looser standards” should not be confused with ”irresponsible standards”. It remains more difficult to meet bank standards as compared to 5 years. Today’s underwriters are more conservative with respect to household income, overall assets and credit scores.
Even as compared to one year ago:
- Minimum credit score requirements are higher
- Downpayment/equity requirements are larger
- Maximum allowable debt-to-income ratios are lower
For buyers and refinancing households gaining approval, though, the reward is the lowest mortgage rates in a lifetime. Mortgage rates in Wisconsin continue to fall, helping home affordability reach new highs.
If you’re in the market to buy a new home or refinance one, your timing is excellent.
What’s Ahead For Mortgage Rates This Week : December 12, 2011
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Mortgage markets were mostly unchanged for the 6th consecutive week last week as Wall Street’s uncertainty regarding the future of U.S. and global economies remain.
Mortgage bonds made gains made through the early part of the week, which caused mortgage rates in Wisconsin to drop Monday through Wednesday afternoon. Those gains were erased, however, as 23 of 27 Euro leaders reached agreement on fiscal coordination and budget planning, sparking optimism for the future of the Eurozone, in general.
Mortgage rates rose Thursday and Friday.
This week, the momentum may continue. The main story we’ll be watching is the Federal Open Market Committee’s Tuesday meeting — its 8th scheduled meeting of the year and its last until 2012.
When the Fed meets, mortgage rates are often volatile.
At its meeting, the FOMC is expected to vote the Fed Funds Rate unchanged within its current range near zero percent. However, it won’t be the Fed’s vote on the Fed Funds Rate that changes markets. Wall Street is keyed in to two other elements, instead.
The first element is the verbiage of the FOMC’s press release to markets. Issued upon adjournment, the FOMC’s press release identifies strengths and weaknesses in the U.S. economy, and offers an outlook for the future plus potential threats. The “tone” of the press release can change how mortgage bonds trade.
If the Fed describes an economy in recovery with few threat to growth, mortgage rates are likely to rise post-FOMC. By contrast, if the Fed says the economy has slowed, mortgage rates should fall.
The second element on which Wall Street is focused is the likelihood of new, Fed-led economic stimulus. Should the Federal Reserve modify existing support programs, or introduce new ones, mortgage rates are sure to shift. Unfortunately, we can’t know in which direction — it will depend on the size of the program and its expected impact on the U.S. economy.
The Fed adjourns Tuesday at 2:15 PM ET.
Beyond the Fed, there is other rate-moving news, too, including Tuesday’s Retail Sales report, Thursday’s Producer Price Index, and Friday’s Consumer Price Index. Each has the capacity to change mortgage rates throughout Lake Geneva real estate so if you’re floating a mortgage rate, it may be a good time to lock one in.
Freddie Mac reports the average 30-year fixed rate mortgage at 3.99% with 0.7 discount points, plus closing costs.
What’s Ahead For Mortgage Rates This Week : December 5, 2011
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Mortgage markets made little change last week for the fifth time in as many weeks.
As Wall Street watched both the Eurozone and the U.S. regain their respective footing, expectations for a new Fed-led stimulus increased, which prevented mortgage rates from rising.
According to Freddie Mac, the average 30-year fixed rate conforming mortgage rose just 2 basis points last week to 4.00% nationwide with an accompanying 0.7 discount points.
1 discount point is equal to 1 percent of your loan size.
For every $100,000 borrowed at 4.00 percent, therefore, today’s Wisconsin mortgage applicant should expect to pay $700 in “points”. Mortgage rates for “zero-point loans” are higher than Freddie Mac’s published, average value.
This week, with few economic releases set for release, last week’s big stories should carry over into the current one — the biggest of which was a worldwide, coordinated central bank effort to increase system liquidity.
The European Central Bank, Bank of England and U.S. Federal Reserve were joined by the central banks of Japan, Canada and Switzerland in the effort. Stock markets rallied on the news.
Another of last week’s big stories was the sharp drop in the U.S. Unemployment Rate.
After hovering near nine percent since April, the Unemployment Rate broke out of range, dropping to to 8.6% in November. This is the lowest national Unemployment Rate since March 2009, a milestone achieved via the combination of new jobs created (+192,000 in November with revisions) plus a smaller U.S. workforce.
The U.S. economy has added 1.9 million jobs in the last 14 months.
Lastly, last week’s New Home Sales and Pending Home Sales Index releases support the growing belief that the U.S. housing market is in recovery. Both reports showed strong growth for October, corroborating what home builders have been saying — the housing market is improving and buyer ranks are growing.
Home supplies are lower in many U.S. markets.
This week, rate shoppers in Lake Geneva mortgage should be on alert. Market momentum changes quickly, and rates are currently anchored by the expectation of new Federal Reserve stimulus. The Fed meets December 13, 2011. As that date approaches, expectations could change, causing rates to rise.
Mortgage rates remain near all-time lows. It’s a good time to lock a rate with your lender.
Banks Resume Tightening Mortgage Guidelines
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As part of its quarterly survey to member banks nationwide, the Federal Reserve asked senior loan officers whether last quarter’s “prime” residential mortgage guidelines have tightened, loosened, or remained as-is.
A “prime” borrower is defined as one with a well-documented, high-performance credit history; with low debt-to-income ratios; and who chooses to finance a home via a traditional fixed-rate or adjustable-rate mortgage product.
After a 2-year easing cycle, the nation’s biggest bank banks report that they’ve reversed course, and are raising the bar on mortgage approvals.
For the period July-September 2010, 88% of responding loan officers admitted to tightening their prime guidelines, or leaving them “basically unchanged”.
If you’ve applied for a home loan of late, you’ve experienced this first-hand.
High delinquency rates and defaults since 2007 have caused the banks to rethink what they will lend, and to whom. As a result, today’s mortgage lenders scrutinize assets, incomes, and credit scores to make sure that nothing “slips by”.
For today’s home buyers and would-be refinancers, the mortgage approval process can be challenging as compared to how it looked just 18 months ago.
- Minimum credit scores requirements are higher today
- Downpayment/equity requirements are larger today
- Debt-to-Income ratio requirements are more strict today
In other words, although mortgage rates are the lowest that they’ve been in history, fewer applicants can qualify. And, with more the housing market still in recovery, it’s likely that guidelines will tighten again in 2012.
Therefore, if you’re among the many people in Lake Geneva real estate wondering if it’s the right time to buy a home or refinance, consider that, although mortgage rates may fall, approval standards may not.
The best rate in the world won’t matter if you’re not eligible to lock it.
A Simple Explanation Of The Federal Reserve Statement (August 10, 2010 Edition)
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Today, in its first meeting in 6 weeks, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged.
The Fed Fund Rate remains at a historical low, within a prescribed target range of 0.000-0.250 percent.
In its press release, the FOMC said that, since June, the pace of economic recovery “has slowed.” Household spending is increasing but remains restrained because of high levels of unemployment, falling home values, and restrictive credit.
Today’s statement shows less economic optimism as compared to the prior year’s worth of FOMC statements dating back to June 2009. The Fed is looking for growth to be “more modest in the near-term” than its previous expectations.
Weaknesses aside, the Fed highlighted strengths in the economy, too:
- Growth is ongoing on a national level
- Inflation levels remain exceedingly low
- Business spending is rising
As expected, the Fed re-affirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period.”
There were no surprises in the Fed’s statement so, as a result, the mortgage market’s reaction to the release has been neutral. Lake Geneva mortgage rates for Lake Geneva real estate are unchanged this afternoon.
The FOMC’s next meeting is scheduled for September 21, 2010.