The Federal Reserve cut interest rates this week.
So naturally, mortgage rates went along for the ride, right?
The benchmark 30-year fixed-rate mortgage rose 4
basis points, to 6.32 percent, according to the Bankrate.com national
survey of large lenders. A basis point is one-hundredth of one percentage
point. The mortgages in this week's survey had an average total
of 0.34 discount and origination points. One year ago, the mortgage
index was 6.44 percent; four weeks ago, it was 6.58 percent.
The benchmark 15-year fixed-rate mortgage rose 4 basis points,
to 6 percent. The benchmark 5/1 adjustable-rate mortgage rose 11
basis points, to 6.41 percent. On larger loans, the benchmark 30-year
jumbo rose 3 basis points, to 7.23 percent.
national mortgage survey
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On Tuesday, the Federal Reserve cut the overnight
federal funds rate by half a percentage point. The central bank
explained that "the tightening of credit conditions has the
potential to intensify the housing correction and to restrain economic
growth more generally."
The Fed's goal wasn't to send mortgage rates lower.
Among other things, the central bank wanted to induce lenders to
say yes more often -- especially to jumbo borrowers, who have applied
for mortgages greater than the conforming limit of $417,000. In
the past month, lenders have become more reluctant to extend jumbo
mortgages, because investors are scared of buying packages of jumbo
loans. Investors are not sure about the quality of the loans out
there. That's what has frozen up the jumbo market, and observers
believe the Fed was trying to thaw it out.
"I think the Fed took an aggressive stance here,"
says Bob Walters, chief economist for Quicken Loans. The central
bank, Walters says, showed clear concern over what's happening in
credit markets, the housing market and the overall economy.
So why did mortgage rates go up this week, instead of heading
down? Mortgage rates got ahead of the Fed, that's all. Two months
ago, the benchmark rate on the 30-year fixed was 6.82 percent. Not
long after, investors started to get clued in that the Fed really
might cut short-term rates -- and mortgage rates have fallen in
six of the nine weeks since then.
How much did rates fall since that mid-July peak? Last week, they
had fallen 54 basis points. This week, the Fed cut short-term rates
by 50 basis points, and the 30-year fixed went up 4.
In other words, both the federal funds rate and the 30-year fixed
have fallen by identical amounts in nine weeks. The Fed was just