WASHINGTON – Although Federal Reserve policymakers have cut key interest rates eight times since August, shaving 3 percentage points off the benchmark federal funds rate (READ MORE), mortgage lenders have so far declined to follow suit.
Over the same period, the average contract interest rate for a 30-year fixed-rate loan has fallen only half a percentage point, according to Bloomberg News. Earlier this week, Bank of America Corp. and JPMorgan Chase & Co. – the nation’s second and third largest banks by assets, respectively – were offering a 30-year rate of 6.13 percent for New Jersey borrowers with excellent credit and a 10-percent down payment. Today, LocalLender.net lists the average rate on a 30-year fixed-rate loan as 5.85 percent plus 0.4 points, based on data from Freddie Mac.
Locally, Bank Rhode Island’s Web site lists a 30-year fixed rate of 6.125 percent (for an APR of 6.178 percent), and offers a 20-year home equity loan at an APR of 6.69 percent. Most competitors refrain from listing rates for fixed loans on their Web sites, instead asking borrowers to call. The Washington Trust Co. is offering a home equity line of credit it touts as “our lowest rate in three years” – 3.99-percent APR – though it resets after six months to 5.75 percent. Coastway Credit Union offers equity lines at fixed rates of 5.49 percent and up, or adjustable rates as low as prime minus 1 percent for a current best rate of 4.25 percent.
“For the moment, fixed mortgage rates seem to have disconnected from the 10-year Treasury bond,” Henry Savage, president of Alexandria, Va.-based PMC Mortgage Corp., told Bloomberg News. “Lenders are nervous,” he said, and are likely to remain “skittish” about passing along lower borrowing costs until their own capital levels have improved.
But Clive Granger, the 2003 Nobel laureate in economics and professor emeritus at the University of California, San Diego, offered policymakers his sympathy. “The Fed is trying to drive a car with only slight control of the steering wheel and no control of the gas or the brakes,” Granger told Bloomberg News. “In order to stabilize the economy, people need access to mortgages at rates they can afford, and so far the Fed hasn’t been able to do much about that.”
For information about the Federal Reserve System, including past monetary policy statements by the Federal Open Market Committee, visit www.federalreserve.gov.
