The FED decided today to lower it’s target for the federal funds rate .25% to 2.00%

Don’t forget that this also means that the prime rate lowers by the same percentage leaving the prime rate at 5.00%. The prime rate is the fed funds rate plus 3%. This is not a rule/law, but a guideline followed by all major banks across the US.

How does this effect mortgage rates? Directly, it doesn’t. Indirectly, the ladies and gentlemen of the bond trading world (which is where our rates come from directly) will make decisions on how profitable they believe a particular rate of interest to be based largely on what the fed has to say about inflation and the future of our economy. The policy statement released by the fed stated some much expected commentary about a slower than normal economy and rising prices for energy and commodities. However, the statement also noted that readings on core inflation have improved. Inflation is the direct enemy of the mortgage rate world so this is good news for bonds. The less inflation, the better. As inflation occurs, the mortgages our investors bought 6 months ago is not worth as much so they lower what they’re willing to pay which equals higher rates. So this is good, the fed seems to be trying to ease some concerns about inflation. Although they did say “The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.” But you can probably even chalk this up to the fact that they don’t want to make concrete predictions.

Two side notes:

1. You may see a drop in your credit card interest rates (if it’s variable) and/or your second mortgage rates if you have one. These are traditionally tied to the prime rate in some way so make sure to check your statements to see if you get the benefit. If not, at least for your credit cards, call and negotiate a lower rate on the news.

2. The Federal Reserve Board has a fantastic website with a lot of consumer information that can be useful for you personally, and to give to your clients. The website is www.federalreserve.gov. Look under Consumer Information for great money saving tips to pass on to your database.

If you have questions, email me.

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When rates fall, the question I always get is “Should I refinance my home”? Rates are reaching historic lows again and for many people this is a great time to streamline an adjustable rate mortgage into a fixed. Sounds pretty simple but it really depends on the client’s situation.

With rates dropping to their lowest point in 2 years, I think everyone should have a

Mortgage Check Up to see if their current mortgage is still meeting their financial needs. The most important aspect is to look at the cost to refi vs the monthly savings. A borrower may be able to drop their rate a point, but in some cases it may not make sense for the client to refinance due to an upcoming move, closing costs, appraisal/equity issues, etc. It is important for a lender to look at all these scenarios in a refinance transaction in order to make sure it is truly beneficial for the client and ultimately puts them in a better position financially.

John Davis
Countrywide
Mortgage Banker
404-461-3794

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Here’s stuff I like to project:

CNBC personality, best-selling author and stock guru Jim Cramer on Mad Money Jan. 30, 2008, following the Fed’s decision to cut their benchmark rate an additional 1/2 point at today’s scheduled meeting:

Mini Bio: Harvard law grad, journalist, hedge fund manager/owner, long-time Wall Street commentator.

This is where and when you make the money. The banking apocalypse is coming to an end. I am so confident that right now I feel like purchasing perhaps the most loathed and toxic investment around. I feel like purchasing an asset now synonymous with destruction of value. With this rate cut I think I’m going to go buy a house. You heard me (A HOUSE!)

And now I think you can probably find some darn good buys among houses. With this additional 50 pt basis cut, I think Bernanke has made a turnaround in housing INEVITABLE!

The bottom line: I believe the Fed has given you a once in a decade opportunity to make big money right now. Frankly in stocks and in 6 months in homes. Do NOT be scared away.

Boo-Yah! I don’t care how (in)sane he is, that’s good news to my ears. Mortgage rates will eventual partially catch up to these cuts and the housing industry will survive. Hang in there folks!

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