Fed Makes History by Cutting Interest Rates to the Lowest Level
The Federal Reserve stepped to the financial platform and announced key interest rates that reach historic levels. Mortgage lenders reported interest rates at 5% for mortgage refinancing and home financing. Many mortgage brokers believe the rumors are true that the government will induce lenders to offer mortgage rates in the 4.5% range.”
The Fed’s unprecedented move to further reduce its fed funds target rate to a range of 0 to 0.25% rather than a fixed point was a surprise. The move is an acknowledgment that interest rates in the marketplace had been well below the Fed’s 1% target, which it set at its previous meeting on October 29. The central bank also cut the lending rate for loans directly to banks. “Today was a reminder that the Fed was on the case,” said Jim McDonald, director of equity research at Northern Trust in Chicago. “It was a reaffirmation of their willingness to be very aggressive.” “What we heard today was not revolutionarily different but it was a reminder that they are committed to using their balance sheet to the fullest extent to repair the financial markets and stimulate the economy.”
Many analysts had expected the Fed would cut its fed funds rate to 0.5% from 1%. “In some senses the whole point of this meeting was to say ‘Quit watching interest rates, watch the other things that we can and will do,’” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland. Jack A. Ablin, chief investment officer at Harris Private Bank, said the fact that the Fed targeted a range for its fed fund rate indicates that policy makers did not want to bring the rate all the way to zero. Further rate cuts could have create problems with complications for money market funds, in which fees might outpace yields.
Freddie Mac Eliminates Stated Income and Reduces Jumbo Fees
Freddie Mac announced they are lowering their delivery fees on jumbo mortgage loans. This will make many of the mortgage lenders and brokers happy because often times they were forced to eat the cost to remain competitive with shopping borrowers. Freddie also announced the were discontinuing to purchase of stated-income home loans. Freddie is eliminating the extra delivery fees that it charged on fixed-rate purchase and “no cash-out” home refinancing jumbo mortgages, beginning Jan. 2, when the maximum loan limit for the government sponsored enterprise is scheduled to drop from $729,750 to $625,000.
The GSE also is reducing its delivery fees on fixed-rate, cash-out mortgage refinancing of jumbo loans, according to a Freddie Bulletin to seller/servicers. Fannie Mae and Freddie began purchasing jumbo loans earlier this year when Congress the raised the maximum loan limit from $417,000 to $729,750 as part of an economic stimulus bill. Freddie also used the bulletin to tell lenders that is “discontinuing the purchase of all mortgages originated with stated income and stated assets, including Loan Prospector Accept Plus Mortgages.”
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