Federal Reserve Bank recently helped soften the stormy mortgage market. In August, the Bank lowered its Discount Rate by half a percent, taking it from 6.25 percent down to 5.75 percent. The Discount Rate is the rate at which the Bank lends money directly to commercial banks, credit unions, and savings and loans including large lenders like Countrywide and Bank of America. It is different than the Fed Funds Rate, which is the rate at which banks lend money to other banks. The Discount rate is usually held one percent above the Fed Funds Rate, which makes the Fed a last resort for lending institutions to borrow from – they would generally of course rather borrow from other banks at a lower rate – but with the current liquidity crisis making that difficult, this move will help provide some liquidity at more desirable rates in the short term.
More importantly, the Fed is extending the borrowing period from overnight to 30 days, which could allow some lenders to use the discount window for loan funding prior to sale in the secondary market. The 30-day extension allows time for the credit markets to settle a bit so that buyers of mortgage-backed securities can come back into the market. This move does help some large financial institutions better weather the storm.
Additionally, while some sources predict the Federal Reserve will cut the Fed Funds rate at the next Fed meeting on Sept. 18, other sources aren’t as confident… Other rumors have been turning that Fannie Mae and Freddie Mac will raise the conforming loan limit from $417,000 to $650,000 – allowing more borrowers to have access to lower rates.
~ Odette Mortgage Group provided this update, 530-581-5089 in Tahoe City, 530-582-3370 in Truckee, or omgtahoe.com.
Update: At the Sept. 18 meeting, the Federal Reserve cut a key interest rate ‘in an aggressive attempt to keep turmoil in financial markets from damaging the overall U.S. economy.’ The Federal Reserve cut the federal funds rate, which determines what banks pay to borrow money from each other overnight, by half a percentage point, to 4.75 percent. Click here for The Washington Post’s article.
