The Mortgage Manifesto

The Folly of the Generic

Where do you like to get your information?  From watered-down, generic sources or straight from those in the know?

One of the greatest advantages of the information economy of modern-day life is the ready access to knowledge.  The power of the Internet, the explosion of the World Wide Web, and the interconnectivity across communities, nations, and the world is hard to quantify.

However, we see it affect all aspects of the decisions we make in life.  If you really want to learn about something, the world truly is your oyster.

The former dominance of maintstream media is gradually watered-down everyday, just as their watered-down news bits have to be.  The ability of people to disseminate their personal knowledge continually evolves (like myself when noting my thoughts on this blog).

We live in times of a "velocity of information."  While I've just covered some of the pros there are some inherent challenges that come with all great changes.  Do you feel like you are always trying to play catch-up, reading what you can on the topics that catch your passion and interest?  I sure am.

The velocity that new information comes at us continually speeds up, which requires that we create filters so that we spend time on knowledge-building intake of this information.  If we don't, we end up like gerbels going around and around in a wheel, exerting a ton of effort but not making any progress!

So, while you seek out your select pinpoints of knowledge in this information economy make sure you are choosing where to spend your time and not just spinning a wheel.

www.BrettGrendahl.com

Are You Confused with Mortgage Rates?

A common thread of conversation I have been having with folks the past couple of weeks has gone something like this:

Client:  "Brett, what are mortgage rates looking like after the Fed cut?"

Me:  "They have inched higher."

Client: "Huh?"

Me:  "It is important to remember that the rate the Fed cuts is their Overnight Rate.  Mortgage rates are directly determined not by that rate, but by how mortgage-backed securities (mortgage bonds) trade."

Client:  "Can you explain this?"

Are these the same thoughts in your mind?  This is a shining example of how the general media's reporting of what the Fed does and how it might impact your life and your choices does not really help.  Instead, it only confuses.  Let's take a moment to learn why.

The general media will report something like this, "Fed Cut Rates by 0.5 Today."  They use the generic term rates and then people take from this that ALL rates have gone lower by 0.5.  That is not true.  Always remember that the Fed is only raising or lower one of two rates; either its Overnight Rate or its Discount Rate.  Most of the time time they move the Overnight Rate.  Both of these rates are the rates that large banks pay for extremely short term borrowing from the Federal Reserve. 

The rates for first mortgage programs are market-driven.  The market is what are investors that purchase big pools of these loans (called mortgage-backed securities or mortgage bonds) willing to pay for them right now, today.  The biggest influencer on the price the investor is willing to pay is their outlook regarding future inflation.  If inflationary pressures are assumed to be rising, then they will pay less for mortgage bonds.  When they pay less the rates go higher.  Conversely, if inflation is not a major threat, investors will pay more and that pushes rates lower.

Back to the Fed, when they raise or hike their, say it with me, Overnight Rate or Discount Rate, they make change monetary policy in this country.  Changes to monetary policy are a piece of the ever-changing puzzle that determines inflationary pressures, or lack thereof. 

It is how mortgage bond investors REACT to what the Fed does that directly influences mortgage rates that really matters.

Make sense?

www.BrettGrendahl.com