To the average American home owner with a home equity line of credit, the Fed leaving the Funds Rate at a target range of 0-0.25% means that they can enjoy their low rate on their HELOC for the time being.  Once they begin to adjust the Funds Rate upward, HELOCs which are most often attached to the Prime Rate, will rise as well.

Today's Press Release from the FOMC states:

"Conditions in financial markets improved further in recent weeks.  Household spending has continued to show signs of stabilization but remains constrained  by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit…."

The Fed reiterated their commitment to "employ all available tools to promote economic recovery" and to the purchase of mortgage backed securities and treasury securities:

"…to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October…."

I take this last line to mean that we are not going to see the 4.5% conforming rates that were manipulated earlier this year to the artificial lows.  It would take other forces outside the Fed to see rates dip that low again.  Only time will tell.

The FOMC slashed the Funds Rate by 0.5% to 1.5%.  This is an "emergency" cut and coordinated globally.

If you’re a long time Mortgage Porter subscriber, then you all ready know that the Funds Rate does not directly change mortgage interest rates.  However Fed rate cuts do influence mortgage interest rates, depending on how traders react to the cut.  Remember, mortgage interest rates are based on mortgage backed securities (bonds) and bonds tend to react negatively to inflation.  Often times, mortgage interest rates will increase after the Fed cuts rates as it’s viewed as a move against inflation.

This rate cut is different in that it was done global effort which should hopefully keep our currencies, oil and inflation in check.  The markets remain very volatile.  It’s not even 8:30 am and we’ve all ready seen the DOW open down then pop up 150 and back down to a loss of 150.

The FOMC’s next scheduled meeting (where another rate adjustment is possible) is October 29, 2008.

If you’re interested in seeing the rates I’m quoting live, click here.  Presently, mortgage rates are pretty much unchanged by these events.

If you’re waiting to refinance your property in Washington State, I invite you to complete my on-line loan application so that we can be ready to lock should rates dip to point where it make sense.  Rates move quite quickly in this market!

This morning, Ben Bernanke testified before the House Budget Committee.  You can read his entire testimony here.   During the question and answer session that followed afterwards, there were a few comments that I found interesting:

"Subprime done properly is a positive thing".  I agree completely with Ben Bernanke here.  He gave stats that there are approximately 5 million mortgages classisfied as subprime ARMs with a total principal value of about 1 trillion dollars.   He estimates that currently 20% of the subprime ARMs are delinquent and that not all of the delinquent borrowers will go into foreclosure.   80% of subprime ARMS (the most troublesome sector in the mortgage industry) are performing.

One member of the House, Representative Marcy Kaptur from Ohio-D, didn’t even know who she was addressing!  In an akward moment, she had confused Bernanke with Paulson implying Bernanke was once the CEO of Goldman Sachs and that he may somehow have responsibility with the mortgage meltdown.   From the Baltimore Sun:

"No, no, no, you’re confusing me with the Treasury Secretary, said a smiling Bernanke."

"No, I got the wrong firm?"

Someone whispered to her the Treasury Secretary’s name Henry Paulson which she then uttered.

Then she said "Where were you, sir?"

"I was the CEO of the Princeton economic department," Bernanke said, referring to Princeton University where as economics chair he got to manage other professors and graduate students, not investment bankers and financial traders.

That got a huge laugh in the hearing room, proving yet again it pays for a central banker to have a sense of humor when he has to deal with Congress.

"Sorry, I got you confused with the other one. I’m sorry. Well, I’m glad you clarified that for the record."

Ben’s views on the economy facing slower growth combined with a dismal Philedelphia Fed Manufacturing Index helped to send the Dow tumbling 307 points to a 10 month low.   Mortgage interest rates are currently staying low during this turbulent market.   A rule of thumb to follow is the worse the stock market does, the better rates do as investors are pulling their money from stocks and investing them into bonds.   

All eyes and ears will be on the Fed waiting to see how much they move rates on their meeting on January 30, 2008…or if they take action sooner.   Remember, when the Fed lowers rates, this typically has a reverse action on long term mortgage rates (they go up).   Don’t wait for the Fed meeting to lock in your interest rate.

FOMC Chairman, Ben Bernanke provided testimony to the Joint Economic Committee this morning.  You can read the transcript by clicking here. 

Senator Charles E. Shumer, Chairman of the Joint Economic Committee, Opening Statement is available here.

Q&A from the Committee followed Bernanke’s testimony.    Here’s some bits I found interesting:

Senator Robert Bennett from Utah discussed how 15 years ago, the cry from Congress was that credit was not available to the poor and more needed to be done to make home ownership less restrictive.  Now the cry is that too much credit became available.  He went on to say that large institutions who created these programs are paying the price and they should.   As well as people who falsely stated their income to lenders and flippers hoping for “tulip time” by pushing an inflated home price onto another buyer.   

“Markets make better decisions than government.   Markets will punish.   Markets will reward and markets will eventually stabilize”.

The possibility of having conforming loan limits raised was touched on a couple of times during the Q&A.   Bernanke stressed that the lift should be temporary and that the Government should consider possibly taking some of the credit risk from Freddie and Fannie for the loans over $417,000.

Bernanke continues to stress (as do I) that home owners need to contact their lender as soon as possible if they have any concerns about not being able to make their mortgage payments.   The earlier a lender is contacted, the higher the possibility the home owner will have of being able to work something out with the lender and keep their home.

Fed futures are now betting on the Fed Funds rate being decreased again at the next meeting in December.