Mortgage Rates

Why are mortgage rates so high when the Fed Funds Rate is at 1%? It is partly greed, banks got burned by bad loans and are now charging a steep price to pay for the their mistakes. Simple answer would be supply and demand. The fewer investors willing to buy MBS (mortgage backed securities) the higher the rate of return. In times such as these, when investors are worried about people paying off the mortgages underlying the MBS, the reward is greater, hence, the 30 year conventional mortgage rate is around 6 1/4% and the jumbo rate is around 7. Translate that to real estate- lower rates allow buyers to buy more expensive houses. So will lower rates push buyers to the table?

Advertisements

2 comments

  1. Why did we give all those billions to the banks if they are not going to loan it out? Should we have attached some “strings” to the money? Banks are in the business of evaluating mortgage risk, but if they are unwilling to write mortgages or incapable of doing it correctly, maybe we should let the banks go out of business? A 7% Jumbo rate with a 1% Fed Funds rate in outlandish, and only speaks to the incompetence of all of the bankers!

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s