Quote:
Originally Posted by oklavol  The Fed chairman sets the rate money is loaned to banks, when the rate is lowered, the banks then in turn lower the rate they loan money to consumers.
So it becomes cheaper to buy a house because your house payment becomes lower because the interest rate on your home loan is lower.
Which is what Bush and his appointee the Fed Chairmen did, to stimulate home buying and home loans. They've had the rate so low for so long, they have it next to zero now and it has no effect. Which is part of the mess we have now, they can't stimulate the economy anymore with low interest rates because they have no where to go. |
the bolded part is incorrect. The final paragraph is an attempt at analysis and is just off base. The next to zero rate drives borrowing and would if the FDIC wasn't killing all lenders regarding their loan portfolios.
Mortgage loans have nothing to do with the Fed Funds rate which drives the Prime Rate. Mortgage rates are driven by the private investor market and how they view the relative spread for 30 year paper (risk free rate of gov't issues vs. mortgages). If those spreads are enticing enough to warrant the risk, investors buy mortgages. That spread has moved wider recently because of the enormous perceived risk in pooled mortgage securities. Hence, when the risk free rate was dropping, mortgage rates were rising or flat.