How the Federal Rate cuts effect Mortgage rates

This is the best article I have ever read on how the Federal Rate cuts effect Mortgage rates. So many people are misinformed about this and it ends up being very costly to buyers who are holding out for a better rate.

Smart Mortgage Strategies After the Fed Cut

by Chris Kissell
Wednesday, January 30, 2008

As you listen to news reports about the Federal Reserve's latest rate cut, Bob Walters would like you to keep one thing in mind.

"Ninety percent of the media is getting this dead wrong," says Walters, chief economist at Quicken Loans.

Walters says many reporters and pundits -- and mortgage shoppers -- share a fundamental misunderstanding about how changes in the federal funds rate affect mortgage rates. And that error could cost you money.

"People need to understand that the Federal Reserve does not determine mortgage rates," he says. "The bond market does."

In recent weeks, mortgage rates declined to levels not seen since March 2004. This occurred because fears of an impending economic slowdown drove investors to seek the safety of Treasuries and other bonds.

As investors purchased these safe havens, yields fell, causing mortgage rates to follow suit. However, much of that economic fear has now been priced into the bond market.

"The bond market is concerned about a lot of things, including inflation," Walters says. "The bond market has already factored in that the Federal Reserve is going to continue cutting interest rates. That's fully priced in."

For this reason, Walters urges people to lock in their mortgage rates sooner rather than later.

"I think people would be naive and miss the boat if they wait around and think they are going to go down in the future," he says. "That may happen, but it's also entirely possible that interest rates could rise from here."

Prior to the most recent Fed meeting, speculation swirled about whether the central bank would trim by 25 basis points or 50 basis points or more. Today's regularly scheduled Fed meeting came a week after the Federal Reserve's Open Market Committee announced an emergency rate cut of 75 basis points.

Had the central bank cut by 25 basis points, it would have been "them putting a little icing on the cake they just gave us" after the Jan. 22 emergency rate cut, says Walters.

By cutting a half a percentage point, the Fed is "adding another layer to the cake," he adds.

"I think (Chairman Ben) Bernanke and his crew certainly realize that the financial system is struggling, the banking system is struggling," Walters says. "I guess this is what they made central banks for -- to step in when nobody else wants to."

Although the Fed's latest rate cuts are unlikely to have a direct impact on mortgage rates, that doesn't mean opportunities don't exist for mortgage shoppers.

Indeed, mortgage rates already have declined so significantly that they offer a potential boon to homeowners and prospective buyers with strong credit histories, according to Doug Duncan, chief economist of the Mortgage Bankers Association.

"Clearly, there are some opportunities for people who have managed credit well," Duncan says.

In particular, the drop in mortgage rates should be a wake-up call to anyone who has an adjustable-rate mortgage due to reset in coming months, Duncan says.

"They probably want to get on the bandwagon if they are like others who are creditworthy," Duncan says. "This is an opportunity to refinance and improve your terms."

Of course, not everybody can take advantage of declining mortgage rates. People who have a history of poor credit or whose equity has declined substantially due to sinking home prices may have trouble qualifying to refinance, Walters says.

"There's absolutely a group of people who are being frozen out because of their home value or because of their credit," he says.

Duncan agrees, saying there are fewer opportunities for "people who have a history of not paying their obligations on time."

The Fed has now slashed the federal funds rate by 225 basis points since last September. Walters says such steep cuts are likely to boost the economy eventually.

"As interest rates drop, that just means people's debt burden drops," Walters says. "If you pay less money toward your mortgage because your interest rate drops, that means you have more money to spend.

"This is absolutely a good thing not only for housing but also for consumer spending and for the market."

Still, people should not expect the moribund U.S. housing market to revive anytime soon, Walters says.

"Anybody who thinks home prices are going to rebound in six months or a year is going to be sadly disappointed," Walters says. "Home prices will resume their long march upward somewhere in the next year or two. It won't be fast, it will be slow."

While the nation's housing downturn has spooked many Americans, Duncan urges homeowners to see such woes for what they are -- a market cycle that eventually will work itself out.

He advises people with stable jobs and no plans to move to stand pat and wait for better times ahead.

"If you're not planning on moving and your mortgage fits well and it doesn't appear to be an opportunity to refinance on better terms, then what is there to worry about, really?" he asks. "Not that much."

Walters offers similar calming words, urging today's nervous homeowners to "just take a deep breath and relax and get the best financing in place that they possibly can."

Take away
The Fed's dramatic slashing of the federal funds rate over the past 10 days indicates that the central bank is pulling out the heavy artillery in its fight to halt an economic slowdown. Meanwhile, sinking mortgage rates offer a great opportunity for people looking to buy a home or to refinance.

Copyrighted, Bankrate.com. All rights reserved.

To your success,

Undergoing MyBlogLog Verification

What Planet are YOU on??

I have been around in the sales game for what seems like an eternity. I went from Radio Advertising and Marketing in to the Mortgage Business. I finally found what makes me want to get up in the morning and get to work! I love helping people realize their dreams of owning a home.

But for the life of me...... there is one thing about being in the service business that completely has me bum-fuddled.....

What happened to some peoples common courtesy???

Let me give you an example..... I used to be in Radio sales. Part of my job was cold calling on businesses. I have done both over the phone and walk in cold calling and the results were usually the same. The owner or "salesperson" would act as though I was a total interruption to their business and would sometimes be totally rude.

After trying to save face or salvage something from the conversation, I would often hang up or leave the business and just be completely annoyed.

I would think to myself..... "DON'T THEY GET IT?" Are they so blind that they cant see past me as a salesperson and understand that I could be a potential CUSTOMER?????? What Planet are they from? Am I the only person left on this planet that dares to expect great customer service?

If they treated me that way when I was there trying to help them, what makes them think I would ever go spend money there or refer my friends to their place of business?

Well.... I have to tell you, now that I have been around the Real Estate game for awhile I get that same taste in my mouth often.

I wonder if people realize that when they treat someone badly, or they are rude, or don't follow through, that it could be costing them business in the future?

I try to always be courteous and friendly and do what I say I am going to do because I never know who might need my services some day. And the ONE THING I know for sure is..... if I treat you poorly... the chances of you doing business with me or referring your friends to me is highly unlikely.

I would like to challenge everyone to stop and think the next time someone "interrupts" your day, or when your checking out in the line at the store, or at a social function, dealing with the Title company or the Appraiser, or the Insurance Agent or the next time you answer the phone.....

Could this person I am interacting with be my next customer? Could they know someone right now who could use my services? At some point in time in each of our lives we will have need for one another's services. How will you choose to do business with others? What do you base your decision on and more importantly... how will others choose to do business with you?

The old adage, "You never get a second chance to make a good first impression" still holds true today, especially in the Real Estate industry, and equally important is the clients lasting impression. Today business is more and more about relationships. If we don't start off on the right foot, there are plenty of other places where our potential clients can go.

"If we don't take care of our customers or potential customers, our competition will,"

Treat people the way you want to be treated and it will come back to you.

Remember ..... we really do reap what we sow.

To Your Success,

Susan Davis

Cange What Needs Changing, Not What is easy

Today I was going though some of the daily emails I receive from different sources and came across this amazing exert from a new little book. All of us are in the people business…. We are service providers. This article brings to our attention the value of listening, doing our homework, and putting the customer or potential customer first. I hope you find value in this and I challenge you to look at your interactions with those you come in contact with and see where you might rate in the department of customer service!



To your success!

Susan Davis


Change What Needs Changing, Not what’s Easy

(An excerpt from Change is Good...You Go First)




A few years ago, British Rail had a real fall-off in business. Looking for marketing answers, they went searching for a new ad agency – one that could deliver an ad campaign that would bring their customers back.





When the British Rail executives went to the offices of a prominent London ad agency to discuss their needs, they were met by a very rude receptionist, who insisted that they wait.



Finally, an unkempt person led them to a conference room – a dirty, scruffy room cluttered with plates of stale food. The executives were again, left to wait. A few agency people drifted in and out of the room, basically ignoring the executives who grew impatient by the minute. When the execs tried to ask what was going on, the agency people brushed them off and went about their work.

Eventually, the execs had enough. As they angrily started to get up, completely disgusted with the way they’d been treated, one of the agency people finally showed up.



“Gentlemen,” he said, “your treatment here at our Agency is not typical of how we treat our clients – in fact, we’ve gone out of our way to stage this meeting for you. We’ve behaved this way to point out to you what it’s like to be a customer of British Rail. Your real problem at British Rail isn’t your advertising, it’s your people. We suggest you let us address your employee attitude problem before we attempt to change your advertising.”

The British Rail executives were shocked – but the agency got the account! The agency had the remarkable conviction to point out the problem because it knew exactly what needed to change.



As Yogi Berra once said...

"Before we build a better mousetrap, we need to find out if there are any mice out there."

The Tides are Changing - Cross Selling is here

If you are a Realtor thinking about becoming a Loan Officer.... this article is for you.

There are so many different opinions on this subject. I have found that most people have just that.... an opinion. They dont take the time to really do their homework and learn the facts.

We have all heard the old cliche` "Perception is Reality". Your truth may not be the same as my truth but none the less it is our truth with the facts we have.

Take this example of an exercise I did while taking a course at Landmark Education. The leader had two people in the class come up to the front of the room. One stood on his left and one on his right both looking at each other. He then held up a coffee mug but held it so the front of the class could see what they both were seeing but each of them saw only half the mug. He then asked each one to describe to the other what they knew about the object.

One described it as something like a pencil holder or a cup with no handles. The other described it as a cup with a handle, maybe a coffee cup. They each were looking at the same thing but from different views. They each had a different view and thought the others view was wrong. They were both right given their own point of view.

It was hilarious to everyone out in the audience. The one who was looking at the mug from the handle side was describing a totally different view from the person seeing just the flat side.

It is when we are willing to put our filters of "what we know" to the side and are willing to look at the cup from the other side that we see that even though we are looking at the same thing, the view is totally different.

I have heard the argument that cross selling in unethical, illegal and just downright bad business. I have also heard that it is the best thing since sliced bread. If you are considering having a dual role please visit our website http://www.commissionpros.com/ . I am sure you will find some useful information there.

I have taken the subject and looked at it from both sides of the fence and have formed my own opinion based on taking an educated look at the issue. What I have determined is this. It isnt for eveyone. For those who see the big picture it can be a very good thing for all involved. It is a way for you as a Realtor to have more control over the loan process that eventually helps you take care of your customer. You can help control the costs passed on to your client. And you can make a part of the loan commission instead of giving it all to another loan officer.

I am offering this article posted on Realtor.com back in 2002 on this very subject. This is not a "new fad". It is the way they do and have done business on the coasts and in places like Texas and New York for years.

http://www.realtor.org/rmomag.NSF/pages/mortoriginatemay02?OpenDocument

I invite you to read this and do your homework by visiting us at http://www.commissionpros.com/.

To your success,

Susan Davis

You can find great local Van Buren, Arkansas real estate information on Localism.com Susan Davis is a proud member of the ActiveRain Real Estate Network, a free online community to help real estate professionals grow their business.