Why the Fed Cut Didn’t Lower My Rate!

Well, after much anticipation the Federal Reserve voted yesterday to drop the discount rate by three-quarters of a percent yesterday. In the minds of many on Wall Street the cut was not enough, as pressure had been mounting for a full percentage point drop. Still, by lowering the cost of borrowing money the Federal Reserve was able to motivate good activity on Wall Street, which is exactly what they wanted. The problem is that most homeowners in Utah are conditioned to expect a drop in the Fed Rate to lead to immediate drops in the mortgage rates. That simply isn’t the case.

Remember that mortgage interest rates are linked to the Bond Market. Traditionally the 10 Year Yield on the Treasury Bond has been a good indication of the direction of Mortgage Rates. In other words, as investors put money into Bonds the Mortgage Rates decrease. Similarly, as the amount put into Bonds increases the amount put into Stocks decreases. So, typically, when the bond goes up the stocks go down, and as the bond goes up the mortgage rates go down.

Yesterdays Federal Reserve moves motivated investors to put money into Stocks, which means that less money was available for Bonds. Therefore, yesterday’s action by the Fed was, in the short term, less beneficial to mortgage rates than one would have hoped.

For those who feel that the Federal Reserve cut didn’t help in any way, remember that the job of the Federal Reserve is to set monetary policy for the national economy, and that includes limiting degree of inflation. High rates of inflation means a weakened dollar, which leads to higher prices of oil, gold and other commodities. The Fed is in a balancing act between protecting the dollar (which is hard to do when the continually drop the short term lending rates) and limiting or avoiding a recession (which is hard to do without dropping the short term lending rates).

My advice: Be patient. As stocks increase investors will have more liquidity, which will translate into more money in bonds, thereby driving the interest rates down.

Avoiding a Foreclosure in Utah

I had an interesting conversation the other day with an individual who is working very hard to avoid foreclosure. From this conversation I discovered that many homeowners don’t understand what steps to take if they are facing foreclosure. With this in mind I have been working on a special report on foreclosure avoidance. As she ran through the list of strategies she had been using I suddenly realized that she was leaving out the single most important step.

The Single Most Important Step to Avoiding Foreclosure is . . . RESPOND TO THE MORTGAGE COMPANY.

When you receive letters of phone calls the worst thing you can do is avoid the mortgage company. If you are in default, you will remain in default whether you ignore them or not. I read recently that OCWEN Financial, one of the larger loan servicing companies in the nation has expanded their collections department from 70 people to 123. These individuals are trained to use empathy when communicating with homeowners. Remember, it is in the best interest of the lender to work something out with you, but if you don’t respond to them they cannot find any kind of resolution.

REMINDER: While it is important to communicate with them, DO NOT AGREE TO ANY TERMS WITH OUT CONSULTING A PROFESSIONAL.