Odds On Future Prime Rate Increases Have Changed Since Ben Bernanke Spoke Before The Joint Economic Committee This Morning

Speaking before the Joint Economic Committee of The United States Congress this morning, Fed Chairman Ben Bernanke made the following remarks (snippets below):

"...Future policy actions will be increasingly dependent on the evolution of the economic outlook, as reflected in incoming data..."

"...Even if in the committee's judgment the risks to its objectives are not entirely balanced, at some point in the future, the committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook..."

"...A decision to take no action at a particular meeting does not preclude actions at subsequent meetings..."

"...To support continued healthy growth of the economy, vigilance in regard to inflation is essential..."

"The outlook to inflation is reasonably favorable, but carries some risk...The risks exist that strengthening demand for final products could allow firms to pass on a greater portion of their cost increases in the future."

The Latest Prime Rate Predictions

The investors who trade in Federal Funds Futures are still predicting with odds at 100% (according to current pricing) that the FOMC will raise the benchmark Fed Funds Target Rate by another 25 basis points (0.25 percentage points) when The FOMC convenes their third monetary policy meeting for 2006, which is scheduled to take place on May 10^th, 2006. A quarter point increase to the benchmark Fed Funds Target Rate would, of course, translate to a nationwide Prime Rate increase from the current 7.75% to 8.00%. Economists, academics, and Wall Street rate watchers are all predicting a 25 basis point rate hike on May 10^th as well.

The odds on another 0.25 percentage point increase after the FOMC adjourns their fourth FOMC meeting for 2006, which is set to convene on June 28-29, 2006, have changed as a result of today's remarks by Dr. Bernanke: Fed Funds Futures traders are now predicting (according to current pricing) a 36% chance that The FOMC will raise the cardinal Fed Funds Rate by another 0.25 percentage points when the June 28-29 meeting adjourns. Prior to Bernanke's comments today, odds were @ 64%.

The odds that have been referenced in this blog entry change on a regular basis, so stay tuned for the latest odds.


The current U.S. Prime Rate is 7.75%, and the consensus among investors, economists, academics and Wall Street rate watchers is that we'll have a national Prime Rate of 8.00% after the FOMC adjourns on May 10^th, 2006.

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Minutes From The March 28-29, 2006 FOMC Meeting Were Released Today; Prime Rate Increase Likely on May 10, 2006

The minutes from the March 28-29, 2006 Federal Open Market Committee (FOMC) meeting were released earlier today. A couple of interesting snippets from those minutes can be found below:

"...In the Committee's discussion of monetary policy for the intermeeting period, all members favored raising the target federal funds rate 25 basis points to 4¾ percent at this meeting. The economy seemed to be on track to grow near a sustainable pace with core inflation remaining close to recent readings against a backdrop of financial conditions embodying an expectation of some tightening. Since the available indicators showed that the economy could well be producing in the neighborhood of its sustainable potential and that aggregate demand remained strong, keeping rates unchanged would run an unacceptable risk of rising inflation. Most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy. However, members also recognized that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance. The need for further policy firming would be determined by the implications of incoming information for future activity and inflation..."

"...With regard to the Committee's announcement to be released after the meeting, members expressed some difference in views about the appropriate level of detail to include in the statement. In the end, they concurred that the statement should note that economic growth had rebounded in the current quarter but that it appeared likely to moderate to a more sustainable pace in coming quarters. Policymakers agreed that the announcement should also highlight the favorable outlook for inflation and summarize their reasons for that assessment, but that it should reiterate that possible increases in resource utilization, along with elevated levels of commodity and energy prices, had the potential to add to inflation pressures. Changes in the sentence on the balance of risks to the Committee's objectives were discussed. Several members were concerned that market participants might not fully appreciate the extent to which future policy action will depend on incoming economic data, especially when an end to the tightening process seems likely to be near. Some members expressed concern that retention of the phrase "some further policy firming may be needed to keep the risks...roughly in balance" could be misconstrued as suggesting that the Committee thought that several further tightening steps were likely to be necessary. Nonetheless, all concurred that the current risk assessment could be retained at this meeting..."

Interesting notes, notes that many on Wall Street were happy to read, as the Dow Jones Industrial Average (DJIA) gained a very healthy 194 points today. Investors responded to today's release with bullishness because they divined the language in the Fed minutes as a hint that the Fed may end their rate raising regimen at the next FOMC meeting, which is scheduled to take place on May 10^th, 2006.

As we move into the second quarter, the economy still appears to be advancing with a full head of steam. Unemployment is low--the U.S. has a jobless rate that is the envy of many nations in the industrialized world--and the latest government reports on the U.S. economy indicate that inflation may not be a serious problem.

Of course, the ever increasing cost for a barrel of the light sweet stuff (crude is currently @ $72 per barrel in New York, and rising) is still threatening to "pass through" and cause general price increases for both consumers and producers--inflation--and this may prompt the Fed to raise their benchmark Fed Funds Rate beyond 5% later this year. Other issues that are influencing the cost of crude oil include:

• Political tensions in Nigeria, Iran and Iraq (Iraq is pumping less oil today than it was before the war.)
  
• The summer driving season is upon us, which means increased demand for fuel.
  
• The conversion from MTBE reformulated gasoline (RFG) to ethanol RFG in certain regions of the U.S. including the East Coast and major metropolitan areas in Texas.

The Latest Prime Rate Predictions

The investors who trade in Fed Funds Futures are now predicting (according to current pricing) a 100% chance that The FOMC will raise The Fed Funds Target Rate by another 25 basis points (0.25 percentage points) when The FOMC convenes their third monetary policy meeting for 2006, which is scheduled to take place on May 10^th, 2006. A quarter point increase to the Fed Funds Target Rate would, of course, translate to a nationwide Prime Rate increase from the current 7.75% to 8.00%.

The fourth FOMC meeting for 2006 is set to convene on June 28-29, 2006, and Fed Funds Futures traders are now predicting (according to current pricing) a 30% chance that The FOMC will raise The Fed Funds Rate by another 0.25 percentage points when the June 28-29 meeting adjourns.

The odds that have been referenced in this blog entry change on a regular basis, so stay tuned for the latest odds.


The current U.S. Prime Rate (Wall Street Journal® Prime Rate) is 7.75%, and a jump to 8.00% is very likely after the FOMC adjourns on May 10^th, 2006.

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The Top Ten Ways That Certain Mortgage Companies Overcharge or Otherwise Abuse Mortgage Consumers

Here's a top ten list that you need to print out and post to your cork board or kitchen refrigerator: the top ten ways that certain mortgage companies overcharge or otherwise abuse mortgage consumers. An excellent checklist, produced by the Homeowner's Consumer Center and the National Mortgage Complaint Center, a list that anyone in the market for a mortgage shouldn't be without.

Here's the list, which was a part of today's America's Watchdog press release:

"The Homeowner's Consumer Center and its partner the National Mortgage Complaint Center have just released the results of their survey of common mortgage fee overcharges/mortgage lender abuse for 2006. The survey includes mortgage transactions in every state and region of the United States. This survey was compiled as a resource for consumers wondering what mortgage fees are appropriate, and what fees are not. The intent of the survey is to give homeowners or potential homebuyers, mortgage fee bench marks and or items to be aware of when financing or refinancing a home. The top ten areas of overcharging or mortgage borrower abuse are as follows:

1. Yield Spread Premiums. By far the most abusive or the most poorly understood mortgage fee in the United States is the 'yield spread premium', also called a 'YSP.' A 'yield spread premium' should not be confused with "points" or other fees a mortgage lender might charge a consumer. This charge or fee is a 'rebate', or a kickback the mortgage firm or lender receives for increasing a borrowers interest rate over the best rate available for the borrower. In 95%+ of the cases we surveyed, the borrower never understood what it was, or that it translates into a higher monthly mortgage payment for the borrower.
   
   Banks and or mortgage bankers have no federal requirement to disclose 'yield spread premiums' to borrowers, even though they are getting them too. Based on our interviews, over 85%+ of all Americans pay a higher monthly mortgage payment because a bank or mortgage broker failed to explain yield spreads or rebate pricing to an unsuspecting consumer/borrower.
   


2. This year over 1,000,000+ US homeowners will be forced to use the over priced mortgage product of a homebuilder. Seeing it as a way to make more money, regional and national homebuilders have become 'mortgage bankers.' From outlandish processing fees, application fees, undisclosed 'yield spread premiums', or even survey fees, frequently homebuilders hold borrowers hostage by saying take our mortgage product or you don't get the house. Or homebuilders use the lure of a credit or upgrade to justify interest rates that might be as much as a full percentage point over market for the typical borrower. What the borrower does not realize is that the difference between 6% and 7% on a thirty year fixed mortgage might be hundreds of dollars more per month in the form of their monthly mortgage payment. When buying a new home from a homebuilder, the consumer should seek a second opinion from a highly regarded bank or mortgage broker in order to see if they are being treated fairly.
   
   
3. Title Insurance: In over 70% of all mortgages surveyed, the title company was charging the consumer $100 to $300 for a 'title search' or 'title exam.' In 50+% of our sample, the title insurance companies were charging for a 'search' and 'exam' at the same time (which is impossible because they are the same thing). Based on the fact that to issue title insurance to a homeowner, the title company has to 'search' the title anyway, we consider ALL title search, title exam or title binder fees to be junk mortgage fees. Important Note: If you are refinancing your existing home loan, call your existing title insurance company and ask for the 'reinsurance' rate. In most states title insurance companies are required to give homeowners refinancing their mortgage a discount if you use their service again.
   
   
4. In our second year of compiling our survey, we are still finding that 70%+ of all US borrowers are not getting their Good Faith Estimate and or Truth in Lending Statement within three business days of making application for a home loan. In 60+% of the cases we examined, the borrowers 'Good Faith Estimate' had changed by the time the borrower arrived at the closing table. Extra fees or costs had been added to the final HUD-1 Settlement Statement. Even more disturbing, in 40+% of the cases we examined, borrowers had their interest rate increased over the initial offer in the Good Faith Estimate or in what the lender/broker told them the interest rate would be. This is also known as bait & switch.
   
   When making application for a home loan borrowers should insist on an accurate illustration of costs. The borrower should also request in writing if the mortgage has a pre-payment penalty associated with it. Unfortunately in its present form the Federal Truth in Lending Statement only has a small check box where it says 'the loan may ( ) may not ( ) have a prepayment penalty.' The US Department of Housing & Urban Development needs to change this loop-hole to 'does have a prepayment penalty' ( ) or 'Does not have a prepayment penalty' ( ). Millions of unsuspecting US homeowners have been ripped off with poorly disclosed mortgage prepayment penalties. Congress & the Bush Administration need to require this change immediately.
   
   
5. Loan Application Fees: If you are paying a broker or a lender a 'loan origination fee' (which can be 1% or 2% of the loan amount), why should you also have to pay an application fee? 47% of the 7500+ mortgages we inspected had an 'application fee' ranging in price from $50 to $1000. We consider 'loan application fees' to be junk mortgage fees, and we would suggest the consumer not pay them.
   
   
6. Credit reports for an individual cost about $10 or for a couple cost about $20. Yet in the 7500+ transactions we inspected we discovered that the average loan had a $38 credit report fee on it. Don't pay more than $20 for a couple or $10 for a single person unless the broker or lender can show you an actual bill.
   
   
7. Mortgage Administration Fee: What is a mortgage administration fee? Why should you have to pay it? If your loan comes with an 'origination fee' and a 'processing fee' we see no purpose for a 'mortgage administration fee' except as one more excuse to gouge a consumer. We found 'administration fees' on 59% of all mortgages we inspected ranging in price from $25 to $2000. We consider 'mortgage administration fees' to be junk mortgage fees.
   
   
8. Document Preparation Fees: If you loan has a 'origination fee' or a 'processing fee' we see no purpose in paying a "document preparation fee' or 'doc prep fee'. We found document preparation fees on 50+% of the transactions we inspected ranging from $20 to $600. We consider all document preparation (Doc Prep) fees to be junk mortgage fees. Note: Title companies will frequently try to add 'document preparation fees' to their charges. We consider ALL title or closing related 'document preparation fees' (doc prep) to be junk mortgage fees.
   
   
9. Loan Discounts: With increasing interest rates we have seen an increase in 'loan discount fees.' In our sample, 15% of all mortgages came with a 'discount fee.' The problem: In none of these transactions did we see any evidence of a 'discount' or a lower interest rate. If a lender is trying to charge you 'discount points' or a discount, please have them put in writing what your par interest rate is (the best available mortgage interest rate for your credit score and financial setting) and what exactly you are getting for your 'discount.'
   
   
10. TV Mortgage Pitch-Men: Don't let 20,000 bankers kill themselves for the right to give you a mortgage. It's like your mom used to tell you, 'if it sounds too good to be true, it is too good to be true.' We are attempting to list who we think are the best Internet or national mortgage lenders on our Homeowners Consumer Center web site. Until then, we would strongly advise you to only do business with mortgage firms that have a reputation for integrity and honesty.
    
    

We at the Homeowner's Consumer Center believe that homeownership is the American Dream and our goal and purpose is to educate you, so that you can protect your dream and your asset. We are not opposed to profit, in fact we believe that an honest days work, deserves an honest days pay. We are however opposed to profits at any cost and we are opposed to deceiving a homeowner to make a quick buck. The Homeowners consumer center is devoted to the idea of transparent business dealings where the consumer understands what she, he or they are getting

We have designed the Homeowner' Consumer Center to help first time homeowners, current homeowners, homeowners wanting to know more about mortgages, buying or selling real estate, home insurance or other important topics. We invite you to visit our site, and to please tell your friends, family & co-workers about us."

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U.S. Mortgage Rates on The Rise

According to the good folks at RateEmpire.com, mortgage rates are currently at a 31-month high. Since last week, the U.S. average rate for a 30-year, fixed mortgage has gone from 6.35% to 6.43%. Of course, 6.43 percent is still more than a full percentage point lower than the current U.S. Prime Rate, a fact helps put today's news into proper perspective.

Further details can be found below in the snippet from today's press release:

"The national average interest rate on a fixed 30-year loan hit 6.43%, up from 6.35% a week ago. A year ago, the average was 5.93%. This week's average rate is the highest rate since the week of Sept. 4, 2003, when rates hit 6.44%.

Frank Nothaft, Freddie Mac's chief economist, said that the primary worry of economists is the risk of inflation.

'In the first quarter of 2006, it appears that economic growth picked up relative to the last three months of 2005,' he explained. 'There is concern that the continued high level of energy cost may lead to inflation in other sectors of the economy. And fear of inflation leads to higher mortgage rates, like the ones we see this week.'

The average interest rate for a fixed 15-year mortgage was also up to 6.10% from 6.00% the previous week. A year ago, the 15-year mortgage rate averaged 5.38%.

Five-year hybrid ARMs averaged 6.11%, up from the previous week's 6.02%. One-year ARMs were also up to 5.57% from 5.51% the week earlier. A one-year ARM averaged 4.23% one year ago.

The 30-year and hybrid mortgages were based upon the payment of an average 0.6 point. The 15-year mortgage had an average of 0.5 point paid.

Nothaft says that the forecasts for the nation's economic growth may indicate that the Fed will continue to raise interest rates.

'Our forecast for the year as a whole is for economic growth of 3.8% in 2006, above the 3.2% in 2005, which may warrant even more Fed rate hikes than previously expected. If that is the case, mortgage rates may continue their gradual upward trend,' he said.

About RateEmpire.com
RateEmpire.com, an Internet consumer banking marketplace. RateEmpire.com is a destination site of personal finance, banking, investing, taxes, debt management and mortgage rates. RateEmpire.com provides mortgage guides and financial rates and information.

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