The Mortgage Guru

I receive several calls a day with a common question. What are the mortgage rates going to do? With everything that is going on that is a great question for both home buyers and home owners trying to determine if they should take out a home mortgage loan. I will start by telling you this. My parents back in the 80’s were paying about 14% for their mortgage. Mortgage rates have held near historic lows for all of 2008. I just closed an FHA loan for a client who secured a 6% rate with a .625% buydown. With rates being so low and so many bank owned properties on the market (roughly 80% of home sales in the Las Vegas and Henderson areas are bank owned properties) you can now purchase a home 20-30% under market value while securing a very low 30 year fixed rate mortgage.

Now back to the point at hand. What is the prediction for the future of mortgage rates. I will start by telling you while the Fed was lowering the FED FUNDS rate this year the American dollar has taken a beating. You cannot have your cake and eat it too in this situation. If you lower the FED FUNDS rate the value of the dollar will drop. I do not believe the Fed can lower rates anymore without negatively affecting the economic situation in this country more than it already has. My prediction is the Fed will have to raise the FED FUNDS rate come this October 2008 in order to save the dollar and hopefully our economic future.

Now what factors determine the FED FUNDS rate that banks and thus home buyers borrow money? First off, when the Fed lowers the FED FUNDS rate it does not always equate to a lowering of mortgage rates and vice versa. The FED FUNDS rate is the rate that banks borrow money from the Federal bank. They then determine the rate they will loan this borrowed money to home buyers. Thanks to the very competitive market for mortgage loans and the numerous banks still in business this keeps the mortgage rate at a reasonable level. I realize over 300 banks have gone out of business but when you compare this to the last time we had a mortgage crisis in this country when over 800 banks went out of business we are not as bad off as some in the media would have you believe.

The main factor in determining 1st trust deed mortgage rates has historically been the 10-year US Treasury Bond. This index is traded on the open market every business day and is not directly controlled by anyone specifically.  But lately, the 10-year Treasury yield has been an imperfect predicter which has made predicting mortgage rates much more difficult. As the economy starts to recover in the coming months, referring back to my earlier prediction of a rise in rates for October 2008 as well as the treasury yields are poised to move higher. However, when you factor in the risk that refinancing poses to investors in mortgage-backed securities bonds decreasing, so too will the spread between Treasury yields and mortgage rates.

Tags: mortgage rates //