Mortgage Rates not so Responsive to Fed Cuts

With the Federal Reserve cutting rates–again– many homeowners are wondering how that will affect their mortgage loans. Traditionally, whenever we think the Fed is going to cut rates, we put off refinancing our house, or purchasing a new home, thinking that our interest rate might be better later on. But since September 2007, the Fed’s made several cuts and mortgage rates have actually gone up a little bit.

Borrowers who have tried to get a new loan or refinance the old one lately have found that lenders are tightening requirements, making it difficult to get a loan if the situation is less than perfect. You need better credit than you did before, and many lenders are requiring 15 percent down or 15% in equity before making a loan. They’re especially watching the loan-to-value ratio, which is the ratio between the mortgage loan amount and the value of the property. And the secondary mortgage brokers who purchase initial mortgages, Fannie Mae and Freddie Mac, have also tightened their lending requirements.

Investors are leery of mortgage backed securities, and they’re reluctant to trade there. Instead, they are turning to Treasury bonds — even though they have a lower yield. The Fed lowering rates is not the answer right now; a better solution would be for banks to become more willing to make loans again.

 FHA is becoming the number one loan to go with which I will talk about later.