Common Myths About Mortgage Rates Movement
Classified as: Banks, Interest Rates, Mortgage
There are certain misconceptions in the minds of people related to factors that determine mortgage rates. Let us try to explore these in details to find real truth behind these myths.
Mortgage rates moves with Federal Reserve’s Fund Rate
Many consumers are misguided about the different factors in the economy that affects mortgage rates. There is a common misconception among borrowers and also some members of the media that the Federal Funds Rate set by the Federal Reserve is related to mortgage rates, but when the Fed cuts the Fed Funds Rate and mortgage rates are not affected accordingly then this concept of people proves to be wrong.
The reason behind this is that mortgage rates are determined by Mortgage Backed Securities (MBS) and the current coupons they are trading at.MBS are traded every business day just like stocks and other bonds. As MBS’s demand increases, its price goes up and its yield goes down and thus resulting in lower mortgage rates.
In a more simple way we can say that mortgage rates are anything that increases investor demand to buy mortgages resulting in lower mortgage rates. For example when investor pulls out their money from stocks they usually try to invest in safer fixed income investments and MBS is one option they have. So when stocks decline that also increases the demand for MBS.
Another factor that could increase investor demand for mortgages is deflation.MBS and other bonds are fixed income investments so due to inflation the return on that type of investment diminishes. If there is deflation then the fixed investments remain attractive. On the other hand, if inflation is high then investments like MBS are less attractive and demand decreases which ultimately results into an increase in mortgage interest rates.
The reason that mortgage rates often increase when the Fed lowers rates is because the lower Fed rate Stimulates the economy and become a reason of higher inflation in the future which is a bad sign for mortgage bonds that is why mortgage rates usually increase when the Fed cuts their rate.
Mortgage Rates are based on the 10 year Treasury bonds
Another misconception is there in the minds of some people that mortgage rates are based on the US 10 year Treasury bond. Many times it happens that the MBS market moves within a certain spread compared to the 10year but sometimes there is a large disconnection between the MBS and 10year US treasury bonds.The problem that we are currently facing is to keep mortgage rates higher so that they could be given more traditional spreads. There are days where the yield on the 10yr will drop while the yield for MBS will increase when normally they would move in a similar path.
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Great explanations on those mortgage myths. I really think more articles like this should be found online, since there’s been so many misconceptions. There’s lack of information and misinformation, both of which can be dangerous to both the housing industry and the people themselves.
Imees last blog post..The New Housing Stimulus Plan: Obama Includes Refinanced Mortgages in Battle Plan
Great explanation and I agree with the previous commenter–there’s a lot of myths and misconceptions and not a lot of straight up resources.
Also there are people who ‘predict’ what mortgage rates are going to do. While there are factors which help make potentially accurate guesses–they are still guesses! Last fall when rates dropped aroung %5.5 a lot of brokers (who, coincidentally, stood to profit) started saying “Lock in now, rates are never going to be this low again!” and as we all know in the past few weeks they have been lower.
Consumer education is key!
The American people will believe anything the America President and all of his Harvard Buddies tells them.
They told the American People the reason America got into this Depression because the banks stopped lending money because they did not have any money to lend.
So, the Federal Government ask for Trillions of dollars in bailout money to resupply all the banks so they could start lending money again.
The real reason the banks do not have any money was because they stared losing money when the home prices started to falling because all the highest paying American jobs was sent off shore to China.
Then all the American workers were forced to take a job flipping hamburgers at McDonald for minimum wage.
Then all the other jobs that couldn’t be sent off to China were given to all those Illiterate Mexicans that our government has allowed to invade USA by crossing our south border.
This one single act, is an act of treason by the American President and congress.
This has caused the America middle class workers wages to spiral down, down and down for the last 20 years.
The American middle class workers reached a point they could not pay their house mortgage payments and they have tried to keep up by charging things on the their credit cards.
Then about two years ago millions of American workers had come to a point where they had maxed out all their credit cards, so they stopped paying the bank on the house mortgages.
Then the Banks started to losing mortgage money big time because there was millions of workers in this vary same position that could not make payments on their bank mortgages because they had just run out of money.
Then the Banks was forced to foreclose on all these loans and that caused all the real estate home prices to go into a downward spiral big time all across America.
What is a home owner to do if he owes $100,000 on a house that has fallen in value and is now worth only $50,000?
What would you do if the value of your house falls $50,000 or more below the amount of money you owe the bank your house mortgage?
Even if you’re working or not working?
Why of course you’re going to default on the loan and let the bank take the house back. Right?
Now, here is the $64,000 question.
Please tell me how resupplying the banks with money is going to give that American worker a job so he can get off of unemployment and start paying his bills again?
There can be only one thing that will solve this problem and that is bring back to America all them jobs that the President and the congress encouraged international companies to send off shore to Mexico, India and China.
President Obama and all of his Harvard educated buddies are all Globalist.
That means President Obama and his Globalist buddies will never pull out of NAFTA and the WTO for any reason.
So, buckle your seat because we are in for a very, very bumpy.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
What was the main Cause of the Great Depression of 2009?
How did American the wealthiest country in the world get into this Global Depression?
The Great Depression of 2009 was caused by the same forces as back in 1930s. Make no mistake about it we are presently in another Great Depression and it began in 2006.
America will remain in a Depression until we define and address the real root cause of this Depression. Addressing the various symptoms of the problem will only make things even worse.
If you were to ask 5 different guys “what cased the Great Depression” they would all probably give you 5 different answers.
You absolutely can not base your answer on any one person because it seems most people are biased by any number of various personal reasons.
So, that means you are required to search and read, read and read.
The most important thing to remember; “Before any problem can be truly solved it must be defined properly”.
Then cut away all the fat and start searching for all the various answers.
Then you must separate “the symptoms of the problem” from the real things that have directly caused the problem.
The problem must be approached with an open mind and in an unbiased manner. You must do extensive research on the problem.
Then you must formulate an unbiased answer based on all your diligent research.
This is the way I think we got into this mess.
In order to keep the economy moving along down the track there must be two things happen:
1) Wealth must be created by mass production.
2) Real demand to purchase that mass production.
Now, what happens if all the corporations hog all the profits and refuse to pay the very same employees a fair share of the profits generated from this mass production?
Please tell me if the Corporation Mass Produces a Product and pays slave labor wages as in China $2/day.
Who can purchase the slave labor mass produced products from China?
I have worked as a union member for 10 years and then was transfer in the front office and worked the next 20 years in the Front Office as a Department Head over an engineering department.
So, I have worked on both sides of the fence and I completely understand the necessity of a union.
This is exactly why we must have a union to help the workers get a fair and living wage from the profits they help to generate with mass production.
If you think your doing the company a favor by allowing them to hog up all the production profit your totally wrong because the workers must be allowed to make a fair wage because that fair wage is the steam that drives the train down the track.
You may be opposed to unions. But, before you make a final judgment on unions you must accept the fact that if the corporation is to earn profit year after year, it must pay the worker a fair and living wage to buy the very same product they must sell to earn a profit.
This is exactly what the union was created to do.
The main cause of this Depression of 2009 was uneven distribution or profits between the large corporations and their workers. In other words the corporations chose to move all the high paying jobs off shore to China to avoid paying a fair and living wage to mass produce the product.
American workers are indebt up to their ears based on an American wages at the time the debt was incurred.
The American workers average wage have been falling for the last 20 years thanks to the American Congress encouraging all the international companies to move all the highest paying jobs off shore.
Then all the other jobs that couldn’t be sent off to China were given to all those Illiterate Mexicans by the American President and congress by allowing them to invade USA by crossing our south border.
The American People should march on Washington and physically take all these politicians put them all in jail and then try every one of them with TREASON.
Then strip everyone of them of the millions of dollars of family wealth they have been paid to screw all the American workers out of their jobs.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
The biggest problem is that most of the American people don’t understand that America is going into a VERY, VERY huge DEPRESSION.
Most of the American people think that America can survive almost anything and they are right if the President and the Congress would start caring more about the American Workers instead of the rest of the world.
But, the American people are hoping our government with all of those well Educated Harvard graduates will figure it all out someway.
But the problem is that all these people are Globalist and headed right on down the same track as the last Globalist President.
Please trust me. I know exactly what I am talking about. This train is headed in the wrong direction and America will continue sliding deeper and deeper into the greatest Depression the world has ever seen.
We are in big, big, big trouble.
The only way out is to stop fattening up the bankers and the all of their wall street buddies and start creating as many American Jobs as possible.
America must pull out of NAFTA and the WTO and start caring about all the American Workers and hell with the rest of the world.
Please tell me how can the American President and Congress justify sending Billions and Billions 0f Dollars worth of Jobs off shore to China see Americans go homeless on the street?
This is getting absurd.
If you want to get out of this Depression you must March on Washington D.C. and physically take back your country because they are going to continue fattening up all their Bankers and Wall Street friends with your money.
International Trade is a Ponzi scheme. “This is an unsustainable progression of a moving all the highest paying Jobs off shore to have $2/day Slave Labor in China produce products for Industrialized Countries of the World”.
The REAL problem is that International Globalization of Trade is a Council on Foreign Relations (CFR) Ponzi scheme.
Here is how it works:
First you move all the highest paying jobs off shore to biggest labor market in the world.
Of Course in China that means you can get your products produced by the slave labor cost of $2/day.
Now you take all of these finished products and shipped then back to America, the largest and most expensive product market in the world. That way my International Company will make the largest profit possible on every item produced.
You get the products produced by the Slave labor and then you bring back too America and sell the product for best price.
But, then like all PONZI schemes there is this big problem of at some point in time you run out of people to sell your product too.
You say.. Why do you say that?
That is exactly where we are right now in this Ponzi scheme cycle. But, it seams I am the only person in the whole world completely understands it.
All the Industrial Countries of the world elected to join the NAFTA or the WTO and they thought this was the most efficient way to produce products.
Now we the people of all of the Industrial Countries are all going to be forced into bankruptcy and lose everything we have worked for all of our lives. That includes our Job, our home if mortgaged, our Pensions and everything else.
This is going to be exactly like the Big Depression of the 1930s, except this Depression will be much, much worse.
Because during the 1930s there was no credit cards and credit was few and far between. Now, it seems everything we own has been purchased on credit of some type. So, I guess now we will loss everything we own this time.
To go back to what I have dubbed: “International Trade PONZIE SCHEME”.
I want ask you just One Question.
If all of the Industrial countries of the world moved all of the best paying jobs off shore to a SLAVE LABOR MARKET paying $2/day like they have done for the last 20 years.
All of the Workers in the Industrial countries of the world will now be laid-off with no income and can not pay their bills.
All of the workers in China the SLAVE LABOR CAPITAL of the world will be working for $2/day.
HERE IS MY QUESTION:
Please tell me: “who in the HELL will have enough money or Income to Purchase all of these SLAVE LABOR products”?
Of Course the answer is “no one will have any money”.
That is exactly where we are right now..
The sad part about this is that all of this could have been avoided. Even the $875 Billion Dollars spent to Bailout Obama’s ole CFR buddies, the International Banksters and the Wall Street Gangsters.
If American would drop out of NAFTA and the WTO right now things would automatically correct it self like it has always done for the last 216 years in America.