Mortgage News by Lee Maynard

10:00AM Tuesday September 18 

In what could arguably called Ben Bernanke's most closely watched action since taking control of the Federal Reserve Board investors are tuned in across the country to see what will happen.

Today at 2:15PM Mr. Bernanke will let the cat out of the bag and let everyone know whether he will cut the Federal Funds rate by 1/4 of a percent, 1/2 of a percent or let things stay as they are.

There seems to be universal acceptance that he will lower rates ( the first such cut in four years ) but by how much is still in hot debate.  Market expectaions favor the 1/4 point reduction while others are calling for a full 1/2 point.

Look for mortgage markets to remain stable if he calls for a 1/4 point decrease as the pricing on mortgage products moves more on rumor, innuendo and hearsay than actual events.

If he holds steady or reaches deep in his bag of tricks for that 1/2 point decrease look for the mortgage markets to react quickly and substantially to make up for the cloudiness in the investor's crystal balls.

Mortgage rates historically are unmoved when the Fed cuts the overnight rate unless something unexpected comes out of these meetings although rates on adjustable rate mortgages are certainly affected if their indexes are tied to the Federal Funds rate.

I'll keep you posted.  Stay Tuned!!!!!!

Lee Maynard

Update:  The Fed has cut the Federal Funds rate by 1/2 of a point.  This surprised investors and Wall street reacted with great enthusiasm. 

What does this mean to me?

Here is a quick synopsis:

For the first time in more than four years, the Federal Reserve has made it cheaper to borrow, and by an unexpectedly big margin.

Federal funds rate

The central bank's rate-setting committee lowered the target for the federal funds rate by half a percentage point, to 4.75 percent. The prime rate will fall to 7.75 percent. Consumer interest rates based on the prime rate -- mainly home equity lines of credit and most variable-rate credit cards -- will fall a half-point in coming weeks.

Yields on certificates of deposit are likely to fall, too -- especially on shorter-term CDs -- even though they're not tied directly to the prime rate.

 As for mortgages: Don't count on mortgage rates to fall. They might, but they might not.

By my calculations the 30 year fixed note rate is almost exactly the same as it was yesterday at 6.25%. 

The market trend is for people to pull money out of long term investments and capitalize on the short term boom in the stock market. This will put pressure on mortgage rates and they should stay steady.

Bernanke is showing a lot of Moxie and I believe that he has more up his sleeve so stay tuned.

Lee