FHA Mortgage Guide

The Federal Reserve will meet as scheduled September 18th and the key question of the day will concern what to do with the federal funds rate.

While the Fed dropped the discount rate by .5 percent in August, the discount rate reflects what banks pay to borrow short term from the Fed. A lower discount rate increases liquidity, something good in times of economic stress.

However, the federal funds rate is different — it reflects the interest rate that banks charge each other. Since 2004 the federal funds rate has increased consistently from 1.00 percent in May 2004 to 5.26 today, meaning that a host of mortgage and consumer rates have also gone up in response.

A story in The Washington Post, Report by Fed Panel Doesn’t Allay Fears (August 29, 2007), suggests that the federal funds rate may fall in September if the turmoil on Wall Street continues.

For FHA borrowers with adjustable-rate mortgages it is best to have an interest-rate environment that is as low as possible. In an odd way, FHA borrowers with ARMs may benefit from the meltdown elsewhere in the mortgage marketplace because the lower rates that are good for subprime and Alt-A loans are also great for FHA borrowers.

Stay tuned, we’ll see where this goes.

Check out these FHA resources for more information

This entry was posted on Wednesday, August 29th, 2007 at 4:04 pm and is filed under FHA. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.