Fed Minutes Helps Mortgage Rates–depending on your credit score

Freddie Mac’s most recent weekly summary shows a continued push on the all-time interest rate lows that we are currently seeing.

We forecast that this week’s release of the minutes from the last Fed meeting would be influential and they have been.  The post-meeting press release was just 360 words covering a broad range of topics.  The minutes from the June meeting came in at just over 7,000 words.  It is thorough, it widely watched by the markets, and can cure insomnia.   It’s littered with economic data and theory.

Wall Street didn’t like three items included in the report:

• Fed expects below normal growth through 2012
• Fed optimism for employment is dipping
• Credit conditions are easing very slowly

These are generally favorable for mortgage rates and it looks like the week should close with yet another improvement in the mortgage market.  That third condition, about credit conditions, is of particular interest.

More than ever before, the gap between mortgage rates for the “good” and “okay” scenarios is widening.  We covered the impact of loan level price adjustments earlier this week.  We also covered it on September 12, 2008…about 3 days before Lehman collapsed.   We also were talking about it in February of 2008.   For the past 2 year, this has been the topic.

Google seems to keep sending us folks seeking interest rate predictions.  Here’s one:  For the next 2 years as well, forget interest rates, focus on credit score.  FICO score, more than day-to-day fluctuations in interest rate, is driving the mortgage rates generally available.   Rates from day to day fluctuate .125%, sometimes .25%.  Rates for a 740 FICO vs. a 660 FICO can vary by 0.50% or more.  (See other articles about LLPA)

This wouldn’t be a big deal if credit reports were flawlessly accurate and they are anything but flawless.  It’s a good practice in any credit environment, but it’s especially valuable in a tighter credit market to review your credit annually for accuracy.

Ignore the TV ads, the credit report site you should go to is sponsored by Equifax, Experian and TransUnion here:  http://www.annualcreditreport.com/.