In 2003 When Fed Funds Rate was 1%,
Lowest par conforming mortgage rates were 5% for 30 YR Fixed and 4.75% for 15 YR Fixed.
Today, with Fed at 5.25%, 30 YR mortgage rate was 6% on Friday. 15 YR Rate at 5.75%….
SO, a move up of 4.25% in Fed rate now equates to 1% move up in long term mortgage rates.
Of course, while the Fed rate has been fixed for over a year, mortgage rates have been higher (+ 10% swing)
Fed Rate will not directly affect long term mortgage rates.
Many remaining lenders have huge losses buried on their balance sheets. Somehow they will need to compensate for these losses to stay in business, possibly by raising profit margins on loans.
WAMU was brilliant in its marketing a few years back by offering absolutely free checking accounts, no service fees whatsoever. They attracted million of customers while BofA and others pissed people off. Now WAMU offers free checks, free outgoing wires and at least one overdraft a year free. Some banks still charge $15-$40 for these.
The more cash they have floating through their system, the more they can leverage and loan out.
For the same reason, Countrywide Bank is offering 5.65% on 12 Month CD’s and 5.50% on liquid funds for accounts over $10,000 today. Both ARE FDIC insured to $100K.
