30-Year Fixed Mortgage Rates

Even though the Federal Reserve has dropped the Fed Funds Rate from 5.25% down to 1.00% over the last year, the 30-year fixed mortgage rate has actually increased 33 basis points over the same time period.  The spread between the two is now at its widest margin since at least 1998, after it recently overtook the high spreads seen during the low-rate housing boom heyday from 2002 to 2004. 

So while home buyers have yet to benefit from the 4.25% drop in the Fed Funds Rate, banks that have the ability to lend are making a killing.

Comments

[Krishna Sri...:]

So how is the 30 year mortgage rate arrived at ?
Is it somehow tied to the 10 year treasury yields ?

2008 Oct 31 04:53 PM

[D-D:]

This article is stating some obvious facts. But it would be helpful if the article were to state possible causes , solutions to bring the mortgage rate down and so on.

2008 Nov 01 12:44 PM

[notsosmart:]

cause-more greed by the banks now that they got a good haircut on their phony paper.wait till you see all the fees that will be created to make up for the fraud that cant worked anymore.

2008 Nov 01 02:00 PM

[the answer:]

short answer: supply/demand for mortgage backed securities (MBS) dictates the 30 year mortgage rate.

long answer: banks sell mortgages to fannie mae and freddie mac. fannie and freddie bundle those mortgages into MBS. if investors are willing to buy MBS for a 5% return, the 30 year rate will be 5%. in times like this where investors are worried of people paying off the mortgages underlying the MBS, they will only accept a higher rate of return. hence, the 30 year mortgage rate is high.

2008 Nov 02 08:16 PM

[the answer:]

nonetheless, the current 30 year mortgage rate is still low relative to historical levels.


On Nov 02 08:16 PM the answer wrote:

> short answer: supply/demand for mortgage backed securities (MBS)
> dictates the 30 year mortgage rate.
>
> long answer: banks sell mortgages to fannie mae and freddie mac.
> fannie and freddie bundle those mortgages into MBS. if investors
> are willing to buy MBS for a 5% return, the 30 year rate will be
> 5%. in times like this where investors are worried of people paying
> off the mortgages underlying the MBS, they will only accept a higher
> rate of return. hence, the 30 year mortgage rate is high.

2008 Nov 02 08:18 PM