The Fed, a “looming recession”, and fixing FANNIE MAE/ FREDDIE MAC might be creating a once in a lifetime opportunity.
As of this week, futures contracts are giving the Fed a 93% chance of a .25% rate cut on the Fed Funds rate later this month. On September 5, President Trump submitted a plan to help Fannie Mae and Freddie Mac emerge from conservatorship under the US Congress. All the while, the media seems to be promoting an unavoidable recession in the next year or so. All this stated, I have one bit of advice; refinance your home or lock a fixed rate on your adjustable rate mortgage (ARM) NOW!
If the Fed cuts rates, for political or other reasons, yields on the 10 year Treasury should drop, at least a little. Since the 10 year bond is the benchmark rate for all lending, it will most certainly effect mortgage rates, which are already at near 50 year lows. If FANNIE MAE/ FREDDIE MAC are to be spun out of Congress’ purview, and forced to become profitable on their own, then we are about to see the end of the low mortgage rates we’ve become accustomed to.
While I think the Fed rate adjustment is already priced into the 10 year bond, there is a chance lenders will adjust their rates down a bit more, from here. As of today, bankrate.com reports 30 year mortgage rates as low as 3.375%, I think rates may only improve by about .125%, bringing the best rate to roughly 3.25%. So, get ready to refinance or finish your purchase. While the Fed rate adjustment is expected later this month, I am not sure waiting for a .125% adjustment is worth the risk. If FANNIE MAE/ FREDDIE MAC are reformed by Congress, then it will only force rates higher, to cover the risk they guarantee. Lastly, a recession will only make this worse.
My suggestion; get the conversation with your lender going now. Lock a rate with am option of lowering the rate in a few weeks. And back-out of the refi if it does not work out to your favor.
(Image from Old National Bancorp website.)