We now have 2nd mortgages for non-owner-occupied (investment) properties.
The LTVs are limited to 75%, but this is still an excellent product for any investor looking to pull cash out of an investment property (a request we get surprisingly often).
Trump Demands Lower Interest Rates!
In this famous scene from the TV show, “The Office,” Michael Scott declares bankruptcy by walking into the office and just shouting, “I declare bankruptcy.”
Not to be outdone, President Trump walked onto the world stage yesterday and declared, “I demand lower interest rates!”
And rates promptly climbed as result. Darn it!
This is comical because there is so little Mr. Trump can do in the short run – especially now that the Fed has proven how powerless it is when it comes to controlling long-term rates.
The only thing the Fed controls is the overnight Fed Funds Rate (a very short-term overnight borrowing rate for banks), as I have explained dozens of times.
Fed Recently Proved How Powerless It Is
We saw mortgage rates drop almost 2% from October of 2023 to September of 2024 – while the Fed Funds Rate didn’t budge.
Then, since September of 2024, we saw mortgage rates climb over 1% while the Fed cut the Fed Funds Rate by a total of 1%.
What Can Trump Do?
The bond market (which controls interest rates) responds to economic growth and inflation expectations, as I explain often.
So, Trump can do a few things to bring rates down to some extent.
1. He can make real progress in trimming the deficit, as excess spending and borrowing are some of the things that scare bond investors.
But just making pronouncements will probably not be effective; he will also need the support of Congress to make meaningful cuts.
2. Trump can also make meaningful progress by opening up the energy markets; energy is a key input into every aspect of our economy, so lower energy costs mean lower prices and less inflation.
And interestingly, Mr. Trump’s jawboning about energy production (more drilling, more production from OPEC, more nuclear, etc.) has already pushed oil prices down.
So, that is probably impacting rates already.
What Will Push Rates Lower?
But – for truly lower rates, it will take a lot more than Mr. Trump just calling for them.
It will take much smaller deficits, lower inflation, few inflation concerns, and/or much slower growth, or even a recession.
Irony Alert: A Strong Economy = High Rates
There is one final irony to all of this. While low rates often stimulate asset prices, they don’t stimulate economies like everyone thinks; low rates are usually just a result of a slow economy or a recession.
People think low rates come about as a result of the Fed cutting rates, but long-term rates are just a result of bond investors responding to the same weak economic conditions that the Fed is.
Our economic growth rates were much stronger in the 1980s and 1990s when mortgage rates were in the 8% to 10% range.
So, when Mr. Trump is demanding low rates, he’s effectively demanding slower growth too – as bond investors usually don’t deliver low rates unless they expect slow growth (along with low inflation).
