Donna Fuscaldo
FOXBusiness
Typically, when the Federal Open Market Committee cuts interest rates, like it did earlier in the week, the rate consumers pay for a mortgage loan falls. But unfortunately for borrowers, these are atypical times.
One only has to open a newspaper or turn on a TV to hear about the malaise in the housing market, with record numbers of consumers facing foreclosure. With concerns over the credit worthiness of would-be borrowers and banks sitting on a boatload of bad loans, consumers looking to refinance or get a new mortgage are suffering.
“This interest rate cycle has been unique,” said Mike Larson, a real estate analyst at Weiss Research. “At the same time the Fed is cutting rates there’s near panic at times in the credit markets.”
According to Larson, since most mortgages these days are originated at banks, which in turn sell them to secondary markets, the ultimate factor for what rate borrowers pay is investor demand for mortgaged- backed securities.
“If there’s strong investor demand for the mortgages it drives down the interest rate,” said Larson. “If investors stop buying those securities, the rate you and I pay for the loans go up.”
When the Federal Reserve cut interest rates back in January, mortgage rates fell ahead of the cut, but inflation fears drove bond prices down and sent mortgage rates back up.
Based on data from Freddie Mac (FRE: 29.58, -1.03, -3.36%), the McLean, Va., government-backed mortgage company, as of the week ending March 20, the 30-year fixed mortgage rate was at 5.87%, down from 6.13% the week earlier, said Larson. He and other experts noted recent actions by the government to help struggling investment banks, and its move to reduce the capital requirements of government-backed mortgage lenders Fannie Mae (FNM: 30.00, -1.16, -3.72%) and Freddie Mac has helped drive mortgage rates lower.
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