Can someone pls explain Mortgage Rates for me

[AAbsolute]

Great fact and opinion. Thanks all.

 

[Mango]

I would assume that a less than $417,001 (conforming) loan's rate is also somewhat lower than it might naturally be because of, now explicit, gov't guarantees...perhaps?

Not necessarily. My mortgage friends and I have been scratching our heads on this one. Also, we saw some good rallies, but rates didn't come down nearly what we should have seen, given the market was up over 32/32 - 1 point. I can only assume that it's because money hasn't started trickling in from the Feds yet for the bailouts or inflationary pressures.

Depository institutions are required by the Federal Reserve to keep a certain amount of their deposits as required reserves, in the form of vault cash or as electronic funds in reserve accounts with the Fed. Over the course of each day, as banks pay out and receive funds, they may end up with more (or fewer) funds than they need to meet their reserve requirement target. Banks with excess funds typically lend them overnight to other banks that are short on funds, rather than leaving those funds in their non-interest bearing reserve accounts at the Fed or as idle vault cash.

Because of the Federal Reserve's reserve requirements, there is a limit on how much money a bank can lend, [ame="http://en.wikipedia.org/wiki/Reserve_requirement"]http://en.wikipedia.org/wiki/Reserve_req...[/ame]

So, to answer your question, based on everything spoken about above, that doesn't necessarily mean we will see a drop in rates because most likely the world markets will start gaining confidence and the treasuries rates will rise. The spread may thin, though. Hard to tell. My crystal ball is broken. ;-)

 

[elgordoboy]

Not necessarily. My mortgage friends and I have been scratching our heads on this one. Also, we saw some good rallies, but rates didn't come down nearly what we should have seen, given the market was up over 1 point. I can only assume that it's because money hasn't started trickling in from the Feds yet for the bailouts.

Depository institutions are required by the Federal Reserve to keep a certain amount of their deposits as required reserves, in the form of vault cash or as electronic funds in reserve accounts with the Fed. Over the course of each day, as banks pay out and receive funds, they may end up with more (or fewer) funds than they need to meet their reserve requirement target. Banks with excess funds typically lend them overnight to other banks that are short on funds, rather than leaving those funds in their non-interest bearing reserve accounts at the Fed or as idle vault cash.

Because of the Federal Reserve's reserve requirements, there is a limit on how much money a bank can lend, http://en.wikipedia.org/wiki/Reserve_req...

So, to answer your question, based on everything spoken about above, that doesn't necessarily mean we will see a drop in rates because most likely the world markets will start gaining confidence and the treasuries rates will rise. The spread may thin, though. Hard to tell. My crystal ball is broken. ;-)

Geo, here is also a very good link about what moves mortgage rates. http://library.hsh.com/read_article-hsh.asp?row_id=85

My apogies for being unclear . I was more meaning that simply by existing and being obligated to buy mortgages, aren't Fannie and Freddie affecting the mortgage rates by creating a market where none might otherwise exist and thereby affecting rates? Similar to a market maker..I am not judging their existence just thinking. What's the rate difference on a $415,000 30 year fixed loan here and a $420,000 30 year fixed..and why would it be different?

 

[30ashopper]

My apogies for being unclear . I was more meaning that simply by existing and being obligated to buy mortgages, aren't Fannie and Freddie affecting the mortgage rates by creating a market where none might otherwise exist and thereby affecting rates? Similar to a market maker..I am not judging their existence just thinking. What's the rate difference on a $415,000 30 year fixed loan here and a $420,000 30 year fixed..and why would it be different?

According to wikipedia, since F&F can buy conforming loans but not jumbo loans, they make that market more liquid and hence more appealing to banks. Doesn't look like all this new legislation is doing much good though considering current rates.

[ame]http://en.wikipedia.org/wiki/Conforming_loan[/ame]

 

[elgordoboy]

According to wikipedia, since F&F can buy conforming loans but not jumbo loans, they make that market more liquid and hence more appealing to banks. Doesn't look like all this new legislation is doing much good though considering current rates.

http://en.wikipedia.org/wiki/Conforming_loan

Don't you take that tone with me!

 

[Mango]

My apogies for being unclear . I was more meaning that simply by existing and being obligated to buy mortgages, aren't Fannie and Freddie affecting the mortgage rates by creating a market where none might otherwise exist and thereby affecting rates? Similar to a market maker..I am not judging their existence just thinking. What's the rate difference on a $415,000 30 year fixed loan here and a $420,000 30 year fixed..and why would it be different?

No, the existence of the agencies do not affect the Treasury market on a day to day basis, although an argument can be made that because they make the market more liquid, rates are lower. However, Fannie was established in 1938 -The Great Depression- and was backed by US Treasuries because the only types of mortgages people could get were 3 or 5 year amortizations with very large down payments. Then later they became stock holder owned but gov't regulated - making it a quasi govt. agency. once that happened, you now have a capitalistic organization due to shares held by the public. Banks sell loans to one another as well - if conforming- they use agency guidelines, so in essence, that market could have regulated itself if you think about it. There are also different types of loan programs, like Alt-A that established itself in the free market- originating from subprime- and were copied by the GSE's.

You could say Wall Street would be more likely to buy agency loans because they were approved and reviewed by the GSE's, but remember, the loans were underwritten by the Banks and mortgage Banks that sold them to the GSE's, they were competing agencies (Fannie and Freddie -and had slightly different guidelines) the agencies bought them if they met the criteria of automated underwriting. They were sold in bulk, so not every loan was seen in its entirety. Then once they hit Wall Street, they got sliced and diced again.

You raise a good question, because if you think about it, would the ratings agencies who rated the securities and the credit default swap companies who sold the insurance, would they have been more careful, or would govt. have stepped in if the GSE's did not exist and there was soley a free market?

According to wikipedia, since F&F can buy conforming loans but not jumbo loans, they make that market more liquid and hence more appealing to banks. Doesn't look like all this new legislation is doing much good though considering current rates.

http://en.wikipedia.org/wiki/Conforming_loan

Actually, at one point, Fannie, then Freddie later, had a pilot program where they bought jumbos from select Banks. Jumbo rates were always higher for a long time, then jumbo rates were very close to conforming for a while when the real estate market was booming. Then they jumped when the credit crisis occurred once again, considered riskier loans. On adjustable rate jumbo mortgages, many Banks used to put them in portfolios and some still do, that is why you have to shop the rate.

 

[ClintClint]

In view of what me know now, anyone singing the praises of Fannie, Freddie, or the rating agencies, should be ignored.

 

[Bob]

My apogies for being unclear . I was more meaning that simply by existing and being obligated to buy mortgages, aren't Fannie and Freddie affecting the mortgage rates by creating a market where none might otherwise exist and thereby affecting rates? Similar to a market maker..I am not judging their existence just thinking. What's the rate difference on a $415,000 30 year fixed loan here and a $420,000 30 year fixed..and why would it be different?

https://www.penfed.org/productsAndRates/mortgages/mortgageRatesListing.asp it's all the same here