Fed Rates vs Mortgage Rates

The last few weeks have been the most crazy I can remember in my 23 year career.  Today is no exception.  After suffering its worst point drop in history yesterday, the Dow Jones Industrial Average is having a strong day today.  However, this has become the norm, with a terrible day immediately being followed by a strong day and then taking a significant hit shortly after.  I fully expect this trend to continue.  I also believe that large money is leading the pattern, by changing positions from long to short.  Such swings create an environment where massive money can be made, regardless of the direction.

We have had many people wonder why with the Fed dropping short term rates to nearly 0%, mortgage rates are as high as they are.  The beginning point in explaining this is that mortgage interest rates are not tied to the Fed Funds Rate.  The Federal Reserve controls short term interest rates that credit cards, car loans and home equity loans are tied to.  However, the actions the Fed took did and will continue to help soften mortgage interest rates.  As the Fed purchases mortgage backed securities, this will add much needed liquidity to the market and allow more refinance transactions to occur.

There is great risk in floating.  I suggest a locking bias in the near term.