WOW, what a market ride!!  This will be a time to talk about.  Remember this is a market ride, but it is the banks’ ability to lend that is the real issue.  It might be better to watch the TED Spread.  This is the difference between what banks and the Treasury pay to borrow money for three months and it has never topped 400 basis points before — it’s now been two days at above 450!  (It was about 104 basis points a month ago.)  So, there are some fundamental issues with the banking system, but stay calm and keep believing in our future.  It will get better!  Right?!  (I am not a financial planner or financial wiz – just relaying info. the way I see it and hear it).

OK, people hear about the Fed lowering rates and they call to say, “Nicole, the Fed lowered rates …. Now I can get really low rates” …or “I am going to wait to get even better rates!”  Well, it doesn’t work like that.  The Fed may influence mortgage rates, but no, they do not control the mortgage loan market or set the rates.  These are set by the secondary market – where the mortgages are bought and sold by supply and demand.

It is important to realize that there is not one interest rate, but many interest rates!

• Prime rate: The rate offered to a bank’s best customers.
• Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills, they come in denominations of 3 months, 6 months and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate).
• Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt. They come in denominations of 2 years, 5 years and 10 years.
• Treasury Bonds: Long-debt instruments used by the U.S. Government to finance its debt. Treasury bonds come in 30-year denominations.
• Federal Funds Rate: Rates banks charge each other for overnight loans.
• Federal Discount Rate: Rate New York Fed charges to member banks.
• Libor: : London Interbank Offered Rates. Average London Eurodollar rates.
• 6 month CD rate: The average rate that you get when you invest in a 6-month CD.
• 11th District Cost of Funds: Rate determined by averaging a composite of other rates.
• Fannie Mae-Backed Security rates: Fannie Mae pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae-backed securities. The rates on these securities influence mortgage rates very strongly.
• Ginnie Mae-Backed Security rates: Ginnie Mae pools large quantities of mortgages, secures them and sells them as Ginnie Mae-backed securities. The rates on these securities influence mortgage rates on FHA and VA loans.

The old rules that used to be a general guide for mortgage rates, such as bad news (i.e. a slowing economy) being good news for interest rates (i.e. lower rates) and good news (i.e. a growing economy) being bad news for interest rates (i.e. higher rates).   The reality is that actual mortgage interest rates are largely determined on the secondary market, where mortgages are bought and sold.  No one wants to buy right now!  Rates are moving up and down and up.

Rates are volatile, but the loans are here and ready to be made.  Yes, we can do it!  Don’t let the fear keep you or someone you know from asking.  There are too many opportunities right now. 

Nicole Walker

510-LO-30931

phone   360.594.4455

fax        360.676.0686

A Division of Homestead Mortgage