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Greg McBride

Will Fed try to talk interest rates down?

By Greg McBride · Bankrate.com
Monday, December 13, 2010
Posted: 12 pm ET

The Federal Open Market Committee meets tomorrow, with an official statement expected approximately 2:15 p.m. Eastern. No action of any significance is expected.

It was the last meeting that was the big splash known as QE2, with the Fed pledging $600 billion in government bond purchases by the end of next June to reduce interest rates and spur the economy. While there was plenty of skepticism about whether it would work, the early returns clearly show it is not.

Treasury yields and mortgage rates are up sharply since the Fed's announcement. The yield on the 10-year Treasury note was 2.63 percent prior to the Fed's November meeting, and Bankrate.com's average rate on a 30-year fixed mortgage was at a record low of 4.42 percent as of that Nov. 3 meeting.

Now, the 10-year treasury yield is north of 3.3 percent and the average 30-year fixed mortgage rate is approaching 5 percent. Talk about unintended consequences.

As the FOMC, or Federal Open Market Committee, meets, there isn't much they can do and not a whole lot they can say to fix this. Ben Bernanke is under the microscope, so expect the post-meeting statement to justify the quantitative easing, or QE2, actions by pointing to the weakness in the November employment report, the tenuous nature of the economic recovery and even European debt issues.

The Federal Reserve's actions haven't pushed rates lower. Now they'll try to talk rates lower.

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Greg McBride
January 07, 2011 at 8:46 am

The 25% down payment requirement is because it isn't YOUR principal residence. Although your intentions are noble, the fact is there were too many wannabe home flippers buying 2, 3, and 4 properties during the housing boom - often with no money down - only to walk away once prices started to fall. The requirement of higher downpayments - or "skin in the game" - is underscored every time a borrower strategically defaults by walking away. Everyone feels the hangover of the easy credit boom years, even though not everyone got drunk on it.

Sonam T Lhungay
January 07, 2011 at 2:00 am

Im a little loss for words at the way the morgage industry is going.Who is the idiot who makes all the rules?It is bad enough that the RE market is in the toilet because of the astringent lending regulations, but now the lenders have gone absolutely crazy! My wife and me,are trying to buy our daughter a condo in Denver and since she has no credit,(she is a college student) my wife is trying to buy it for her. I just got a couple of gfes and the banks want 25% down????? Used to be 10% was good enough and now they want 25%? We were ready to put 20% down.I guess the RE and the Banking Industry are really not interested in helping people buy anything since they already got the bail out from the government,our tax money! Incidently we have impleccable credit and fair RE holdings. I am shocked and angry that the industry has come to this! I feel sorry for the RE brokers and financiers, it seems not many are going to get approved on much hence no commission! I understand the lending industry was very lax previously and it hurt alot of people but it was introduced by the banking industry! But to go to this kind of extream lending practices is not going to help this country any!