Today in a surprise move the federal reserve along with other central banks around the globe cut the fed funds rate by .50% to 1.5%. The fed funds rate is the rate of interest that 1 bank borrowers from another bank. Now, before you get all excited and think that mortgage rates are now .5% lower, they are not. The fed does not set rates on mortgages, investors set rates on mortgages by the buying and selling of mortgage backed securites. The fed fund rate is a small piece of the puzzle to what determines rates on mortgages. It is still our belief that rates will trend lower, but today rates are unchanged from yesterday.

In other news, we had the release of pending home sales. Economists where expecting a 1% drop but the number came in at a surprisingly stong rise of 7.4%. This is good news for the housing market as it appears home sales are improving, could we have found the bottom?

Investors appear to be very confused as to what to do with their money. The Dow futures this morning before the announcement of the surprise cut was down about 200 points, after the announcement the Dow shot up to positive 200 but then went back into the negative before opening. Currently the Dow is trading up 113 but it has been all over the place. Our 5.5 mbs also has been all over the place, lots of uncertainty as to what is going to happen. Now as i have been typing this update the Dow has now turned to the negative.

It still appears that floating is a safe call, but with all the uncertainty you may sleep better knowing that you locked in your rate today. Stay tuned and we will update you if the market turns for the worse and rates go higher.

For an excellent read on the topic of fed rate cut does not always lead to lower mortgage rates, read an update from back in Feb of this year, by clicking the following link http://www.mortgagenewsdaily.com/2282008_Mortgage_Rates_Fed.asp

And as always, stay tuned and we will update as needed.

As i was about to post this, our 5.5's mbs have sold off big time. Locking now makes sense as rates are going to be worse by about a .25 in discount. Here is good example of the fed funds rate has the opposite effect on mortgage rates. This could be a short term sell off as most indicators are still pointing to lower rates but those rates could be weeks to months from now.