The Loan Lady Blog

In the first part of this month rates jumped unexpectedly.  We had been lulled into complacency as rates remained very low for many months.

Even though rates are still very low in a historical perspective, borrowers who were looking at at  rate of 4.75% to 4.875% were devastated by a half percent increase.

The government has been working hard to keep mortgage rates low, and will continue to do so.

The reason why is pretty apparent. Although the stimulus package will put lots of dollars to work, there’s nothing quite like millions of homeowners having $300-400 extra every month because they refinanced into a lower rate. There’s nothing like these lower payments to help families pay their bills easier or to have a few extra dollars they can spend. Also, with home affordability at an all time high buyers are back IN THE MARKET

And there’s nothing quite like it to stimulate the economy.

The Federal Reserve has been buying hundreds of billions in mortgage backed securities, and they’ve been buying every day of every week.

Like with anything else when someone is buying huge quantities, it drives the price upwards. Higher prices on mortgage securities mean lower interest rates on mortgages.

When you look at the Fed activity, it looks like 4.5-5.5% is the level they’re trying to maintain. Rates bounce around within that general area, but when they get a little too high, the Fed is driving them down. We are seeing now that rates are at 5.5% which is the higher end of the fed’s desired range. Watch for rates to move lower in the coming days.

A big part of why they’re doing this is that the economy is still fragile. It doesn’t feel like we’re in free-fall anymore, but foreclosures are still raging through the land and layoffs are still occurring.

Lenders and the government are working closely together towards the same goal: Keep rates low, knowing that refinances and lower monthly payments will go a long ways to repairing the economy.

And they absolutely will do so to keep rates down and get the economy moving again.