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01/22/08 Federal Reserve Rate Cut:
Although mortgage rates are not directly related to the prime rate they are greatly influenced by it. The rate decrease means investors are going to be getting less from their investments in prime and other very secure investments thus driving investors to invest more heavily in the secondary market which includes mortgage backed securities.
The rate cut will influence mortgage rates and other rates to decrease, which is good for us consumers. It should put more money in our pocket and mortgage rates should come close to reaching record lows. For already strong borrowers and new borrowers entering the market this going to help.
However, the rate cut is likely going to be a slow process in fixing things. For those that are in a tight bind right now this does not offer relief. One of the biggest problems in the housing market is investor confidence. Investors need to believe they are going to get a return on their investment, cutting rates doesn't do that. The fact is investors have a sour taste in their mouth due to the high default rate in the housing market. Relief will occur when there are fewer foreclosures and more homebuyers in the market. This can only happen with investor confidence.
To homeowners, out there, the key is making your payments. Once investors have confidence that they will get a return on their investment then they will be more willing to look at more creative ways of financing. These creative ways of investing often lead lenders to expand their guidelines. With investor confidence we will see guidelines that fit more borrowers and provide loans that are not currently available. For homeowners that are struggling I suggest working on building your overall credit worthiness and sooner or later the guidelines will fit. Rates are now very good and if your overall scenario meets investor guidelines this rate cut may offer a good opportunity to put money back in your pocket.
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