This is a quick reminder that the Fed does not set long-term interest rates!
The Fed only sets the short-term “Fed Funds” rate– or the rate that banks charge each other to borrow money overnight.
The Fed can influence long-term rates with its comments, with its partial control over the money supply, and with its asset/bond buying (Quantitative Easing), but it does not set long-term rates.
Long-term rates are most influenced by the bond market – which is made up of thousands of sophisticated investors evaluating myriad factors that influence what interest rate (or “yield,” more accurately) they will demand before they buy bonds.
Bond investors are often most concerned with wealth preservation (not losing money) and look at such things as the potential for inflation, money supply growth (which affects inflation), future economic growth (which affects Fed policy and inflation once again), and “safety” in times of war or stock market corrections. Inflation is the biggest concern for bond investors because they don’t want inflation rates to exceed their yields, like what is happening now, because that means they are effectively losing money.
Hence, the Fed can actually lower the Fed Funds rate only to see long-term rates go up, if the bond market perceives the lowering of the Fed Funds rate as potentially “inflationary.” The reverse can happen too – where the Fed increases the Fed Funds rate, only to see long-term rates fall because the increase is perceived as disinflationary.
Bond investors as a group tend to be fairly sharp (“wisdom of crowds”) and are thus good predictors of our economic future. This implies that inflation may not be as big of a problem as many might think, or bond investors would be demanding much higher rates.
Slapped Down By My Marketing Team
Last week in my blog about eliminating PMI, I mentioned that a client with a high rate and PMI reached out to refinance. And – I wondered how our marketing missed him.
Well, it turns out they didn’t miss him at all, and had actually reached out numerous times with all kinds of offers that would have saved him as much as $10,000 per year! He simply did not want to refinance for some reason.
In any case, our marketing team is as good as it gets, and they wanted me to make it clear to the world that they didn’t miss a thing 😊.
Slapped Down By A UWM Fan
In my recent blog about UWM suing its own customers, I mentioned that UWM forced brokers to commit to using only UWM if those brokers used its tech stack.
In response to that blog, a good friend of ours, an excellent loan officer and a UWM fan, suggested that I might be “casting stones” and/or not blogging in good faith.
That of course was not the case, but I do want to add my friend’s clarifications.
- He remains a huge fan of UWM for purchases, as they still offer excellent rates, tech and service;
- He still sends his refis anywhere he wants, despite signing UWM’s exclusivity agreement; and
- UWM did not tie their agreement to their tech, but only required brokers to not send purchases to Fairway and Rocket (two huge competitors in the broker/wholesale arena) if they wanted to continue to use UWM.
Founder/Broker | JVM Lending
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