As we’ve said ad nauseum, the Fed can only do so much with interest rates. They can cut the living daylights out of the short term rate, driving down things like credit cards and HELOCs and pushing up things like food prices; but they don’t control the long-term interest rates associated with most mortgages. So it makes perfect sense to us here at Blown Mortgage that long-term mortgage rates are racing upwards as worries of inflation and problems with the GSE’s put a premium on long-term risk.
From the New York Times:
The average interest rate for 30-year fixed-rate mortgages rose to 6.71 percent on Tuesday, from 6.44 percent on Friday, according to HSH Associates, a publisher of consumer rates. The average rate for so-called jumbo loans, which cannot be sold to Fannie Mae and Freddie Mac, was 7.8 percent, the highest since December 2000.
Loan rates are rising because of concern in the financial markets about the future of Fannie Mae and Freddie Mac, which own or guarantee nearly half of the nation’s $12 trillion mortgage market. The federal government has proposed a rescue, and has urged Congress to approve it quickly.
But bond investors, worried that the companies may not be as big a support to the market as they have been, are driving up interest rates on securities backed by home loans. That added cost is being passed on to consumers through the mortgage markets. For a $400,000 loan, the increase in 30-year rates in the last few days would add $71 to a monthly bill, or $852 a year.
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