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Mortgage Rates Rise 10% After Fed Rate Cuts

Johns Wu Posted in Mortgage Rates by Johns Wu
April 25, 2008 11:59 AM - 7 Comments

The Fed’s attempts at thawing the frozen mortgage lending industry have not yet showed any signs of hope. In fact, during the last few months while the Fed has been cutting interest rates from 5% to 2.50%, mortgage rates have actually inched up over 10% from their monthly lows!

There are a lot of news headlines today about average 30 year mortgages shooting up over 6%. This is an INCREDIBLY awkward phenomenon!

Reasons Why Mortgage Rates Are Rising Amidst Fed Cuts

  • Investors are fleeing from mortgage backed securities (CDOs). In finance, loans are frequently repackaged and resold to big investors in bulk. This way, the home loan originators can unload their loan obligations and acquire more cash to re-loan to home buyers. The problem is that no one wants anything to do with mortgages now, so lenders are having a hard time repackaging their loans. See this excellent sub prime cartoon for a crude explanation of how the lending industry works.
  • Lenders are more strict about who they give money to.
  • Lenders need to overcharge new home buyers to offset their past sub-prime losses.

Yes, housing prices have decreased considerably from their 2006 highs, but with mortgage rates still fluttering around 6%, smart buyers will continue to stay on the sidelines for a better buying opportunity. Either housing prices or home loan rates will have to come down lower.

When do YOU think the housing market will finally bottom out? Late 2008? Mid 2009? or maybe early 2010?

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Comments (7)
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  1. Bob said:
    on April 24th at 09:53 am

    If this were almost any other country in the world the CEOs of BofA, WaMu, Merrill Lynch, Countrywide et.al would already be in prison. If it were China half of them would have already been executed. But in America they are free to concoct their next fiasco. Savings & Loan Scandal 1, Enron, Sub-Prime Scam….whats next?

  2. Roge said:
    on April 25th at 01:16 pm

    Right on, Bob. I think the housing issue will come around just like anything else. The greed that big business has taken on is unconscionable. The proud, the free, and the “how can I get more” generation. I live in the real world. I go to work M-F, then pay my bills/mortgage(30 year fixed at 5.375%, thank you very much), pet the dog, hug my kids and life will go on. I can only control my little world. Investing is a risk and will always be a risk. So minimize risk! Invest in your family.

  3. Dave said:
    on April 26th at 03:22 am

    You seem to be quoting the federal discount rate, based on your graph and the figures you’re putting out there. However, when people say the Fed “lowered interest rates”, they’re usually talking about the federal funds rate, which is different and arguably more influential on the economy under normal conditions. The federal funds rate has also fallen in the past x months, so this is mostly just nitpicking. But.. the more you know?

  4. bob said:
    on May 3rd at 12:51 pm

    Our economy is going down and all life necessities are going up, people are losing their homes, big corporates are feeding on people blood because there are no regulations and you’re still happy with what we enduring!! Bob, please don’t mention China because you have no idea. I can tell you this: Overall the US is declining and if it continues this way, you are going to find yourself working in China or India in 20 years. We all will.

  5. steve said:
    on May 4th at 05:09 pm

    to 2nd bob – its humorous that you ask bob not to mention china as if you have any idea…our gdp showed a 2/3% (although pitiful) growth over the first qtr 2008 which pessimists can only label as a “growth” recession (oxymoron, huh)…and we certainly would be in trouble if the economy remained stagnant FOR 20 YEARS…absolutely ludicrous post…thanks for the laugh

  6. Dan Isaacs said:
    on May 8th at 04:46 pm

    WRT to the Mortgage rates being around %6…why is this high? It’s still near historic lows. My first mortgage in 2002 was %6.25, and I was thrilled to have it. With housing being near bottom prices, it’d be stupid NOT to by now if you were in the market.

  7. cranker said:
    on May 8th at 08:01 pm

    yup bob lots more would be in jail be at least some are serving jail time but even then they will walk out with millions hidden , maybe 6 months into new presidents term i think banks will line out if and only if that new 3 way control mister bush is setting up to control interrest rates can be over ruled , to think the world bank will have a hand in our fed rates makes me down right puke , we take a beating from what the world bank has let japan and china and india get by with for the last 5 yrs . even though japan had to raise there rates from zero to .05 to business investors o gee that was real fair ,,, is a shame bush has let others run our rates into the mud and foreign money buy up so much of america , saudia arabs control 6 percent of total america maybe they will have a say in future investment rates .

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