What to expect from recent Federal Reserve rate cuts?
The Federal Reserve cut their rates by a quarter of a percentage point on September 18, 2019. This is the second time this year that the Federal Reserve has cut these rates. We don’t have a direct line to the White House or a crystal ball to see into the future but we can offer a look into how these cuts may affect you as a borrower, loan originator, or real estate agent.
First things First…
Many people assume that Federal Reserve cuts are directly related to mortgage rates. This isn’t the case when it comes to policy changes unless there is a change to Mortgage-Backed Securities (MBS), which move on their own, unlike other markets. Current mortgage rates are directly influenced by the MBS’s security tradings. When the Federal Reserve “cuts/lowers/raises/increases rates” by any amount, it only affects their short term loans with participating banks. Essentially, encouraging banks to lend out money and it doesn’t affect the rates being offered when they do lend that money out.
The next big question is…
“Should I wait to lock my loan or a borrower’s loans?” In short, there is no definitive answer to this question and the decision relies soley on the borrower’s comfortability with their current payment, costs and rate quoted. Since the Federal Reserves cuts, there has been a slight rise in rates in the last two weeks, which tells us that the market knew it was only a matter of time till these cuts would come into effect. In the coming days, one of two things will happen—rates will go back down or they may raise again. If you are closing on a loan in the next few weeks or months consider if the risk is worth taking on waiting for rates to go down or not.
In summary, we don’t know what’s going to happen tomorrow. We don’t know what’s going to happen a week from now or a month from now. But this is a good time to have a conversation with your borrowers or Loan Originator about the recent cuts to the Federal Reserve and find a course of action to stay ahead of the market.