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Rates Are Going Down and Fee’s Are Going Up! I Am So Confused.

13 Sep

Putting the FOMC statement in plain EnglishSometimes, things just have a way of working themselves out. My wife hates when I say that, but in this circumstance it is true. If you read my blog a few days ago, I braced my clients for fees to increase on all conventional loans. But thankfully, the news today from The Federal Open Market Committee drove rates right back down. It’s like the fee increase never happened. Why?

Because the Fed voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent. For the eighth consecutive meeting, the vote was nearly unanimous (9-1 vote).

The Fed Funds Rate has been near zero percent since December 2008.

In its press release, the Federal Reserve noted that the U.S. economy has been expanding “at a moderate pace” in recent months, led by growth in household spending. However, “strains in global financial markets” remain a significant threat to growth in the near-term, a remark made in reference to the Eurozone and its sovereign debt and recession issues.

The Fed’s statement also included the following economic observations :

  1. Growth in employment has been slow with unemployment elevated
  2. Inflation has been subdued, despite rising gas and oil prices
  3. Business spending on equipment and structures has slowed

In addition, the Fed addressed the housing market, stating that there have been signs of improvement, “albeit from a depressed level”.

The biggest news to come out of the FOMC meeting, though, was the launch of the Fed’s third round of quantitative easing (QE3).

QE3 is a program by which the Federal Reserve will purchase $40 billion in mortgage-backed bonds monthly, with no defined “end date” for the program. So long as the Fed believes that the market needs support, it will keep QE3 in place.

In the near-term, QE3 is good for Sacramento rate shoppers and home buyers. With the Fed in line to buy $40 billion in mortgage bonds each month, demand for bonds is expected to stay strong which, all things equal, leads mortgage rates lower.

We’re seeing this already today. Mortgage pricing is improving post-FOMC, with rates nearing their lowest levels of the week. Things just have a way of working themselves out….

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Posted by on September 13, 2012 in Federal Reserve

 

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