Loan Rates Still Up

Why aren't mortgage rates dropping further, since the Fed keeps lowering the funds rate? It's projected to be 2.5% by Tuesday, March 18, 2008, according to Chris Seymour (pictured) who writes "Credit Corner" in the Red Rock News, Sedona, Arizona.

Seymour went on to say, in his March 14, 2008 column, that with the 30-year fixed mortgage rate still around 6%, we are seeing "an all-time high" in the spread between comparable securities and lending rates.

"Why?" asks Seymour.

That's exactly what I've been wondering! exclaims blogger - me. There's no law that says mortgage rates have to rise and fall with the Federal Reserve rate. The Fed rate is a "suggestion," and it's not even a suggestion for business-to-consumer lenders. No, it's a suggestion for the overnight lending rate between banks - business-to-business.

We've grown accustomed to tight correlation between residential lending rates and the Fed rate. But it seems lenders are taking the opportunity to recoup some of their losses by keeping rates stable, rather than lowering them more. With losses in nine figures (multiple billions), those of use who're paying off our home years sooner to avoid tens of thousands of dollars interest charges in excess of 100% for the life of the loan should be grateful our HELOC rates aren't going up!