Monday Market Commentary: Mortgage Rates Stable

by Alex Stenback on August 20, 2007

Fed_funds_vs_30_yr_frm
No doubt you’ve heard the Fed cut the Discount rate on Friday.  Couple of things
on this.  First, when one normally hears about a "Fed Rate Cut," the
rate referred to is the Federal Funds Rate, which is the target rate
for banks lending money to one another.  The discount rate is sort of a
second tier Fed directed rate, usually 1% higher than the Fed Funds Rate, and
is the rate the Fed itself charges banks for overnight loans.  The Fed cut this rate (and also extended the terms from overnight to 30 days) to give major banks another outlet from which they can borrow (adding liquidity) to prevent the credit contraction we are seeing from getting worse.  Also, never forget, the Fed has no control over mortgage rates (see chart above comparing the Federal Funds Rate to the Average 30 year fixed rate.)

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Last Week:
Mortgage bonds saw a good bit of volatility last week, driven almost entirely by the vomit-inducing moves made by stocks.  By weeks end, there was little to no change in actual mortgage rates.
This Week:
Though the economic calendar holds a couple of reports that could influence rates, (Durable Goods Orders, New Home Sales) all eyes will be on the financial markets and the  banking system  for signs of further duress.  Thus far, despite the near round the clock coverage of the mortgage meltdown, there has been very little impact on the Prime Conforming (good credit, loan amounts less than $417K) part of the mortgage market.  Though this could change at any time, it’s good news for most homeowners and homebuyers.

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