A reader wrote into the blog yesterday, saying I had missed an important point in my breakdown of how a Fed rate cut does or doesn’t affect your mortgage, and he had a good point, so here you go:
"You left out one key segment of the mortgage market as it relates to whether Fed Funds Rate cuts will help or hurt your mortgage interest rate. This is the Conforming vs. Jumbo loan market. There is a great deal of misconception in the general public as it relates to when the Fed cuts the Fed funds rate and who benefits. Conforming loan amounts seem to be the benefactor with Fed cuts, while Jumbo's either lag or see inverse effects of a Fed cut. This is in large part due to the continued risk that has been priced into the Jumbo products by secondary capital markets, as these loans are not federally insured by the GSE's … and thanks to the recent write downs and subprime portfolio exposure news from Fannie and Freddie, we all know what's in store for those GSE's on the horizon don't we? "
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