Thursday, December 6, 2007

Will the Feds give us an early Christmas present this year ?

The markets are all betting that the Fed will cut rates when it meets on December 11th. The big question is will they cut by ¼ % or ½% ?
Consensus is looking for a ¼ % rate cut and that will bring good news to the mortgage market. Home equity loans will get the immediate boost and we hope that mortgage rates will soon follow suit.

Rates are on the decline right now. We are in a data-driven market and the weaker economic reports and continued increase in foreclosures nationally have put a damper on the economy. The bond market has held its ground below 4% and mortgage rates have dropped to levels that we haven’t seen in over a year.

Bill Gross, PIMCO's bond guru, forecasts that the fed funds rate will drop to 3.25% or lower by the end of 2008 - good news for mortgage rates in the coming year.

While mortgage rates have continued to drop, we do need to be vigilant with the ever-changing lending marketplace. Banks continue to tighten guidelines across the board and are demanding even better credit, more liquidity and larger down payments. Many lenders are now capping mortgages at 80% of the purchase price. While you can still get 90-95% financing, it becomes more difficult to obtain by the day.

When will this tightening cycle end ? Many bankers believe that lending guidelines will stabilize in the first quarter of 2008 . We already see some of the banks that have not been hard-hit by the sub-prime mess step back into the lending arena. The key to getting a good rate today? Look for a portfolio lender who does not rely upon the still-fickle secondary market for funds. There are more of these lenders out there than you think.

Shop carefully and you will get the mortgage you seek at a rate better than you would have expected.

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