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Article: Fed's rate cut won't directly affect mortgage rates
- Article from:
- The Sun - Naperville (IL)
- Article date:
- September 30, 2007
- Author:
CopyrightCopyright, 2007, The Naperville Sun. All rights reserved. REPRODUCTION PROHIBITED. (Hide copyright information)
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Yes, the Federal Reserve cut short-term rates. No, that doesn't mean that mortgage rates will inevitably go down, especially in the short term.
A look at mortgage rates must begin with a history lesson. From Jan. 3, 2001, to June 25, 2003, the Federal Reserve reduced its target for the federal funds rate 13 times. Here's what happened to the average 30-year mortgage rate in the month after each cut: It fell eight times and rose five times.
It's simply not true that a Fed rate cut automatically leads to a drop in fixed mortgage rates. Because this point is so widely misunderstood, mortgage people wax passionately about it.
Such is the case for Dan Dowling, president of United Mortgage ...