Fed Minutes : A Fed Divided Reaches Comprise

Wednesday, the Federal Reserve released the minutes from its 2-day meeting September 20-21, 2011.

The release shows a divided Fed in disagreement about the current U.S. monetary policy. The group reached compromise for new economic stimulus, however, and maintained its commitment to accommodative interest rates.

Wall Street reacted tepidly to the minutes. Mortgage rates in Minneapolis worsened slightly post-release.

The Fed Minutes gets less press than the FOMC's post-meeting press release, but it's every bit as important. Because it details the conversations that take place among voting and non-voting Fed members at FOMC meetings, the Fed Minutes is an inside-look at the debates and discussion that lead to new monetary policy.

As examples, here are some of the topics covered at the September FOMC meeting :

• On growth : Economic growth was slow, but "did not suggest a contraction"
• On housing : The market continues to be "depressed by weak demand"
• On rates : The Fed Funds Rate will remain low until mid-2013

Then, with Fed members divided on whether the central bank should add new stimulus, it reached a compromise instead, launching the $400 billion "Operation Twist" program. Operation Twist is meant to lower longer-term interest rates, including mortgage rates.

Since Operation Twist began, mortgage rates are higher by nearly 0.375%.

Also noteworthy within the Fed Minutes was concern for an economic slowdown and how the Federal Reserve may react. According to the record, a slowdown may prompt the Fed to introduce its third round of qualitative easing, or QE3. An out-sized stimulus plan would likely lead rates higher.

Nothing will happen until the Fed's next meeting, however. Chairman Ben Bernanke & Co meet next November 1-2 for a 2-day meeting..

Retail Sales Expected To Rise; Mortgage Rates Should Rise, Too

The American Consumer is alive and well, it seems.

Friday morning, the Census Bureau will release its Retail Sales figures for September. The report is expected to show an increase in gross receipts for the 15th straight month with analysts predicting a 0.6 percent increase from August.

The projected increase represents the largest jump in Retail Sales in six months and would likely lead mortgage rates higher for buyers in Maple Grove and   nationwide.

The connection between Retail Sales and mortgage rates is fairly straight-forward. Retail Sales are the majority component of "consumer spending" and consumer spending represents the majority of the U.S. economy -- up to 70 percent, by some estimates.

And, as the economy goes, so go mortgage rates.

10 months ago, mortgage rates shot forward to start the year. This is because expectations were high for a strong economic rebound. Conforming and FHA rates crossed 5 percent at the time and were headed toward six.

By mid-April, though, it was clear that economic data was falling short of predictions. As a result, mortgage rates declined, kicking off the 2011 Refi Boom. Then, by August, on ongoing economic softness, mortgage rates in Minnesota fell further, making new all-time lows.

Expectations for a recovery have returned. Rates are now rising.

Last week's strong jobs report sparked hope for the U.S. economy and investors have been voting with their dollars. Mortgage rates are now up 7 consecutive days and Friday's Retail Sales report could cement the trend.

If you're shopping mortgage rates today, there's risk in "floating". You may want to lock your rate before Friday's Retail Sales report drives rates even higher.

The Retail Sales report will be released at 8:30 AM ET.

What's Ahead For Mortgage Rates This Week : October 11, 2011

Mortgage markets worsened last week as safe haven buying eased and demand for mortgage-backed bonds dropped. As in most weeks since March 2011, Greece and U.S. jobs dictated market direction.

Conforming mortgage rates in Minnesota rose last week, lifting rates off their all-time lows and causing consternation among the nation's would-be buyers and refinancers.

Last week's action may surprise you. After all, Freddie Mac's weekly mortgage rate survey said average, 30-year fixed rate mortgages had dipped, dropping to 3.94% -- the first time the average rate reported sub-4 percent.

A keen eye, however, revealed the another truth.

Yes, the average 30-year fixed rate mortgage did go sub-4 percent, but, in order to get those rates, applicants were suddenly required to pay 0.8 "discount points". This is an increase of 0.1 discount points from the week prior, a change in loan cost thatr reduces the benefit of falling mortgage rates.

1 discount point is equal to 1 percent of your loan size.

All of that is history now, however,. Rates climbed each day last week and are now at their pre-Labor Day levels. The Refi Boom may not be over, but it may be stalled.

This week, mortgage rates may continue to climb. There is talk within the Eurozone that Germany and France will come to Greece's aid, and that a plan will be solidified prior to November 3. This would boost stock markets at the expense of bonds, leading to higher mortgage rates.

In addition, last week's strong employment data has renewed speculation that the U.S. economy is, in fact, healthy so analysts are now watching for Friday's Retail Sales data. 

Because consumer spending is an economic catalyst, if Retail Sales shows strength, mortgage rates should rise.

And, lastly, there is a 10-year Treasury auction Wednesday. Mortgage bonds don't mirror the treasuries, but when demand is strong for treasuries, it's often strong for mortgage-backed bonds, too. Therefore, a strong auction of government debt will help hold mortgage rates down.

A weak auction should lead rates higher.

What's Ahead For Mortgage Rates This Week : October 11, 2011

Mortgage markets worsened last week as safe haven buying eased and demand for mortgage-backed bonds dropped. As in most weeks since March 2011, Greece and U.S. jobs dictated market direction.

Conforming mortgage rates in Minnesota rose last week, lifting rates off their all-time lows and causing consternation among the nation's would-be buyers and refinancers.

Last week's action may surprise you. After all, Freddie Mac's weekly mortgage rate survey said average, 30-year fixed rate mortgages had dipped, dropping to 3.94% -- the first time the average rate reported sub-4 percent.

A keen eye, however, revealed the another truth.

Yes, the average 30-year fixed rate mortgage did go sub-4 percent, but, in order to get those rates, applicants were suddenly required to pay 0.8 "discount points". This is an increase of 0.1 discount points from the week prior, a change in loan cost thatr reduces the benefit of falling mortgage rates.

1 discount point is equal to 1 percent of your loan size.

All of that is history now, however,. Rates climbed each day last week and are now at their pre-Labor Day levels. The Refi Boom may not be over, but it may be stalled.

This week, mortgage rates may continue to climb. There is talk within the Eurozone that Germany and France will come to Greece's aid, and that a plan will be solidified prior to November 3. This would boost stock markets at the expense of bonds, leading to higher mortgage rates.

In addition, last week's strong employment data has renewed speculation that the U.S. economy is, in fact, healthy so analysts are now watching for Friday's Retail Sales data. 

Because consumer spending is an economic catalyst, if Retail Sales shows strength, mortgage rates should rise.

And, lastly, there is a 10-year Treasury auction Wednesday. Mortgage bonds don't mirror the treasuries, but when demand is strong for treasuries, it's often strong for mortgage-backed bonds, too. Therefore, a strong auction of government debt will help hold mortgage rates down.

A weak auction should lead rates higher.

Should I Refinance My Home?

With mortgage rates at all-time lows, you may be asking "Is now a good time to refinance?". This short interview from NBC's The Today Show offers good insight.

Refinancing a mortgage is about more than just "low rates". For example, there are costs associated with giving a new mortgage and even with the average, 30-year fixed rate mortgage near 4 percent, the costs of a such a move can outweigh the benefits -- both in the short- and long-term.

The video originally ran in September when mortgage rates averaged 4.09%. Rates are different today, but the offered advice remains relevant.

Some of the key points raised include :

• The lowest rates come with the highest costs. Consider a slightly higher-rate option from your bank.
• Falling home values may make it harder to qualify for a refinance in the future. Your best time to act may be now.
• If you're many years into a 30-year loan, you can consider switching to a 15-year mortgage to avoid "resetting" your term.

And, lastly, the interviewee makes a strong point that your refinance should save you enough money to make paying the closing costs "worth it". Make sure the break-even point on your closing costs versus your monthly savings occurs within a reasonable time frame.

At 4 minutes, the The Today Show video is short, but dense with quality information. For follow-up on whether a refinance makes sense for your situation, be sure to talk with your loan officer.