Hi Diane,

Yesterday the Fed raised the discount rate by .25% (The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility). Last week the Fed did indicate that the move might be coming, yet the timing of their announcement was surprising to many.

As you might recall, at the start of the mortgage meltdown, mortgage lenders were having difficulty securing warehouse lines to allow them to provide mortgage funding. Lenders did have the option to access the Discount Window at the Fed (Federal Reserve Banks offer three discount window programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate. All discount window loans are fully secured.) However, because costs for these funds were high AND repayment had to be done within 28 days, most lenders were unable to utilize this option.

As a result, the Fed held an emergency meeting, lowered the Discount Rate and extended the repayment period to 90 days. These changes made the Discount Window option a viable solution for lenders and helped curtail the severity of the mortgage meltdown.

Yesterday's announcement reverses those emergency measures. Yet, as long as warehouse lines remain functional, this announcement should not adversely affect mortgage lending.

When making this change yesterday, the Fed noted that the continual improvement in financial market conditions gave them the foundation for this move. The Fed also said that they do not anticipate this raise to lead to tighter financial conditions for households or businesses nor does this move indicate any change in their outlook for the economy or for monetary policy.

However, as the Fed makes changes, the government backs out of Mortgage Backed Securities (MBS) purchases and slows down stimulus programs, we continue to assess economic growth and inflation concerns.

One of the most popular measures of inflation within the U.S. is the Consumer Price Index (CPI). The CPI measures the estimated average price of consumer goods and services purchased by households. This index rose by 0.2% for January, less than the 0.3% expected. With the publishing of the January results, the year-over-year CPI is at 2.6%, below expectations of 2.8%. The more closely watched Core CPI (which strips out food and energy costs), actually fell by 0.1%, below expectations of a 0.1% rise. The last time Core CPI showed a negative monthly reading was 28 years ago. This helped to drop the year-over-year Core CPI rate to 1.6%, a bit below expectations of a 1.8% rise.

These results show that, for the time being, inflation is a non issue. However, it will likely become a factor in the next year or two. And, the best hedge for inflation is to fix as many costs at today's prices as you can. A home purchase today with a historically low mortgage rate allows buyers to fix the price of their home and the associated financing costs. We will continue to keep an eye on this index and other economic indicators.

And, as always, below are the rates we've been seeing this week:

• 30 year conforming             4.75%      1 pt.

• 30 year high balance           5.125%      1 pt.

• 30 year FHA                        4.75%        1 pt.

• 30 Yr. FHA high balance     4.75%       1 pt.

• 5 year jumbo                       4.50%       1 pt.

• 7 year jumbo                       5.00%        1 pt.

• 10 year jumbo                      5.375%     1 pt.

• 30 year jumbo                     5.75%        1 pt.

Regards,
Tracie

Tracie Southerland

Financial Advisor & Mortgage Advisor
Email · Biography
650.319.1603
License 01190919

Reader Comments

Add your comments

Please keep your comments relevant to this blog entry. Email addresses are never displayed, but they are required to confirm your comments.

Name*

Email

Comment*

* Please enter the text you see in the image above. This is required to reduce the amount of spam within comments on this blog.