"I can’t understand why mortgage rates are so high when fed fund rates are so low. If houses are to be sold, don’t you think rates should be 5% for 30 years? Nobody seems to address this. I can understand that banks are hurting and need to make money, but think if we get those rates down houses will sell."
It’s so complicated it gives me a headache just thinking about it, but I’ll give your sophisticated question the old college try. When the government cuts the prime rate it only affects short term interest rates, like credit cards and auto loans. But mortgage rates are long term and are dictated by Treasury note rates and LIBOR, the rate at which banks borrow from one another worldwide. So the prime rate and mortgage rates don’t really have a damn thing to do with one another. I also agree with you that if bank rates could be dramatically cut, we could cure all our housing woes overnight. If our slow-moving, forget-about-the-little-guy Congress could get their act together and allow our government to offer a 4.75% conventional rate mortgage to anyone who wants it, foreclosures would be stopped in their tracks, new buyers would rush into the market and every homeowner currently sweating out their next rate hike would be celebrating!
