The average 30-year fixed mortgage rate rose to 5.70% from 5.48% for the week ended Feb. 4, according to Bankrate.com. The average 15-year fixed rate mortgage increased to 5.31% from 5.10%, and the average jumbo 30-year fixed rate jumped to 7.12% from 7.06%. Adjustable rate mortgages were mixed over the past week, with the average 1-year ARM falling to 5.73% from 5.87% and the 5/1 ARM increasing to 5.5% from 5.41%.

Mortgage rates rise to highest in six weeks – Feb. 5, 2009

Politicians seem to caught up in their fight over a stimulus package that doesn’t appear to have any stimulus in it at all.  Simultaneously, the weekly number measuring the people that became unemployed rose again this week to 626,000 people in a single week.

We currently have more unemployed people in total in the United States than we have ever had in the nations history.

The latest rise in mortgage rates seems to rest squarely on the shoulders of the Federal Reserve and Barack Obama for signing on to the Nancy Pelosi stimulus plan.

Mortgage rates have been climbing since the Federal Reserve released its most recent post-meeting statement on Jan. 28, which was noncommittal about the possibility of buying long-term Treasury securities in an effort to reduce mortgage rates.

But offsetting that move is the government’s massive stimulus plan, which is being paid for via Treasury auctions.

cnn

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The American economy remained stuck in the slow lane over the first three months of the year, expanding by a modest 0.6 percent annualized rate, the Commerce Department announced Wednesday morning.

Exports Help Economy to Modest Growth – New York Times

The impossibly weak US dollar pushed exports abroad as other countries picked up our goods and services at a bargain.  That’s not something that is likely to last as the cost to produce products increases, those prices to export will have to go up and end the arbitrage.  Its even more likely that some of these exports were short lived at best as the US manufactures less and less products all the times from automobiles to ram to textiles.  Now the big question is what will the Federal Reserve do?  They are expected to signal their next move in about 90 minutes, which could help the anemic growth continue or could push us head on into a recession.

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Oil prices are pushing up on $125 a barrel, food costs are escalating rapidly due to demand for ethanol, and its even rumored that postage prices may increase soon, so postage tape and stamps plus bulk rates could go up as well.

That all points to inflation, which in some cases has started to sneak into some mortgage rates, which despite the Federal reserve moves are not offering people much in the way of savings as banks pocket the adjustment in the form of profits to offset their sub prime loans.  In that regard, another Fed rate cut is likely to be more of a bailout move than it is a boost to the economy.

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Freddie Mac is lending a jumbo hand to a group of major U.S. banks, offering to buy as much as $15 billion in mortgages that used to be too big for its program.

On Thursday, Freddie Mac (nyse: FRE – news - people ) said it would purchase home loans of up to $729,000 from lenders including Wells Fargo, JPMorgan Chase, Citigroup, and Washington Mutual.
Freddie Mac Super-Sizes Its Program

This has been expected for a couple months now since the government cleared the way for Freddie Mac to take on these jumbo sized loans a process that mirrors a plan also allowing VA loan amounts to go higher as well.

In the past, a borrower that wanted to borrow more than $417,000 would have to get a primary mortgage for the first part of the mortgage up to that old max and then another for the amount over that paying a substantially higher interest rate.  Potentially, now Freddie Mac can make it easier for people to take out a loan or more importantly refinance with a federally backed loan as Freddie Mac now starts to purchase loans off the books of banks, enabling them theoretically to re-extend new credit to new borrowers.  That said, don’t run the printers out of ink yet, the big ‘if’ in this equation is the concept of re-extending the credit once the banks are bailed out by Freddie Mac.  It could be possible that Freddie Mac and the US government are just taking on bad loans from banks that could write good loans in the first place.

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In the United Kingdom things are much different.  Thanks there do not have the support of the central bank, and the credit crisis there is forcing banks to raise their mortgage interest rates to borrowers in order to deter people from taking mortgages out at all.  If you are shopping for a new home in the United Kingdom and you have 10% or less to put down of the home, you will be looking at an interest rate above 7%.  The banks don’t want to take any risk at all the United Kingdom right now especially as the number of banks face the potential of bankruptcy.

In the United States the Federal Reserve is loaning money directly to the investment houses that secure mortgages and it helped to bail out and raise caps for Fannie Mae.  It remains to be seen which method will stand the test of time.  The bail out method of the United States or the free-market method of United Kingdom.  In some ways this is kind of like watching a schizophrenic on a diet, one minute eating cheeseburgers and the next minute they’re popping weight loss pills.

Related Stories to UK Rates Rising while US mortgage rates drop

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Families plead for rate relief
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Mortgage rates lifted as lenders feel pain
Financial Times, UK – Mar 27, 2008
Millions of home loan borrowers now face higher interest rates as banks pass on higher wholesale funding costs as conditions worsen in money markets. …

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Now, I personally do not trust Quicken Loans as they once promised me a rate on my own home refinance.  I locked in at the rate and 2 weeks before the close they called to tell me that it was no longer possible unless I paid a higher interest rate.  They offered up excuses that were unprovable, but the reality was that it was either their way or the highway. 

I chose the highway and refinanced with Wells Fargo instead!

Regardless, their short article Does the Fed rate cut affect your mortgage rate? offers up the examples necessary to understand how the Federal Reserve Rate Cut a can impact your finances ( a little ) both positively and negatively.  The article is not likely to save you a fortune this year or even save your house from foreclosure if you are in trouble, but understand the situation might save you enough money to buy a truck rack on clearance from an after christmas sale.

The key concept to understand is that the Federal Reserve has the ability to impact short term interest rates.  Here are some loans that may be impacted in the short term:

Credit Cards
Adjustable Rate Mortgages (ARMs) – under 7 years, even more if 3 or under
Home Equity Lines
Some (but not all) Student Loans
Your Savings Account rates
New Vehicle Loans – Ergo new loans that you take out as opposed to the loans that you already have.
Other Lines of Credit – such as Overdraft Protection

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The guidance suggested that appropriate strategies to avert defaults could include modifying the terms of the loan or deferring payments.  In the statement by regulators:

In addition, institutions should consider referring appropriate borrowers to qualified home ownership counseling services that may be able to work with all parties to avoid unnecessary foreclosures.

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Economists increasingly believe the Fed at that meeting will lower a key interest rate, now at 5.25 percent, by at least one-quarter percentage point to protect the economy from the credit crisis. The Fed has not lowered this rate in four years.

The Fed’s report said the following, “”Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited.”

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