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The Federal Reserve has been on a rate cutting spree once more. Many mortgage applicants are calling their mortgage representative and expecting a lower interest rate. Others who have been waiting to refinance are puzzled as to why mortgage rates have not moved lower during the recent five Fed rate cuts. This is difficult to explain to consumers who have watched a 2.25% reduction by the Fed with very little benefit in mortgage rates.

Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates.  A mortgage rate can be in effect for 30-years while a rate set by the Fed can change from one day to another.

It is often said history repeats itself. And if history is any teacher, we can learn from what happened to mortgage rates the last time the Federal Reserve was in a rate-cutting cycle.

The last time the Fed was in a lengthy rate cutting cycle was back in 2001 from January 3, 2001 to December 11, 2001. In the span of 11 months, they cut the Fed Funds rate 11 times with eight of those cuts by 50bp. This resulted in a total of 475bp or 4.75% in short-term interest rate cuts taking the Fed Funds Rate from 6.00% down to 1.75%. Now most uninformed people would naturally think because the Fed cut rates by so much during this time that mortgage rates would follow suit and trend lower as well. Not so.  Mortgage rates actually moved higher during this time of significant rate cuts because inflation, the arch enemy of bonds, gradually rose.

Now let’s take a look at what happened with the Fed’s most recent cutting cycle, the first since 2001. On September 18, 2007 the Fed cut the Fed Funds Rate by 50bp. The mortgage bond market briefly enjoyed a “knee-jerk” reaction to the Fed move by closing higher that day, but lost 140bp over the following two sessions. Then on October 31, 2007 the Fed lowered the Fed Funds rate by 25bp. The mortgage bond market responded by losing 78bp over the following five trading days. On December 11, 2007 the Fed once again lowered rates by 25bp and the mortgage bond market lost 88bp in the next three days. So far this year, the Fed delivered a surprise 75bp rate cut on January 22, 2008 and mortgage bonds lost a whopping 144bp in just 2 days. Eight days later and as widely expected, the Fed cut rates by 50bp. Within 13 days from that 50bp cut, mortgage bonds lost 269bp.

It’s true. All successful Loan Officer’s have one thing in common; a great Loan Processor.

Who is this person and why are they so important to you? The Loan Processor is truly the back-bone of any mortgage company. They bear the burden associated with the loan process. They communicate with all parties involved in the process; the underwriters, insurance agents, appraisers, inspectors, closers, title companies, escrow agents, real estate agents, the borrowers, and of course, the Loan Officer.

A great Loan Processor can take a loan and make it appear seamless and effortless. Loan Officers are responsible for the loan transaction overall, but it’s the Loan Processor that makes the loan flow through to the closing table. Loan Processors play a critical role in the success of the transaction and if they were not experienced or were not good at processing, the transaction would in all likelihood never make it to the closing table.

The job of the Loan Processor may appear easy, but it is not. They are responsible for taking various elements of the loan approval, put them together in the correct order, and making sure everything is done when and how it is supposed to done. Loan Processors deal will people that can be quite volatile and verbally abusive over issues the Processor has no control over. Because of their experience they are able to diffuse most situations and continue to process the file.

So, who is my Loan Processor?

Rose Hatch is the Processor for A & A Mortgage, Inc. Rose has been in the industry since 1998 and her vast experience and knowledge contributes to the daily success of every Loan Officer here. Because of Rose’s expertise as a Loan Processor, she is able to move the loan transaction through to closing table on time and without any hiccups. Should there ever be a snag in the process, Rose is quick to solve the issue and have the loan moving again toward closing.

By having a Loan Processor as experienced and dedicated to the client as Rose, I am able to ensure that my clients will experience a low-stress loan process and will be much happier that they decided to place their trust in me, A & A, and Rose.

The Federal Open Market Committee lowered the Fed Funds Rate to 2.250 percent Tuesday while leaving the door open for future rate cuts.

Stock markets cheered the Fed's move; the Dow Jones Dark-Arts Industrial Average rallied 400 points in the wake of the announcement.

Meanwhile, the cash that fueled the stock gains had to come from somewhere and one of those places was the bond market. It's no surprise, therefore, that following the FOMC's press release, 30-year fixed rate mortgages spiked by 0.250%.

Stated more clearly, the Fed cut the Fed Funds Rate and mortgage rates went up again.

See, every time that the Federal Reserve cuts the Fed Funds Rate, it's an explicit signal the economy needs a trickle-down jumpstart.

When the Fed Funds Rate is lower, doing business is cheaper for banks, who in turn make it cheaper for businesses to do business, who in turn make it cheaper for consumers to live life.

This process can take up to a year for each rate cut or rate hike.

Meanwhile, as the changes to the Fed Funds Rate trickle their way through the economy, carrying on ordinary, day-to-day activities gets "cheaper" for everyone in the country. There's more money left for discretionary items, or investment in capital items, or whatever.

For example, the Federal Reserve has cut the Fed Funds Rate by 3.000 percent since September.

American consumers borrow $2.5 trillion on their credit cards so the 3-point reduction equates to $75,000,000,000 in interest payment savings.

You can only imagine what the reduction can do for businesses because business borrow far more money than consumers.

So, when the Fed cuts rates, it's hope is that most of these "savings" get pumped back into the economy somehow. This is how rate cuts can lead to economic growthTrillion-Dollar-Experiment .

Sometimes, though, the growth is uncontrolled.

The fancy word for this situation is "inflation" and inflation is the enemy of mortgage bonds; it erodes the value of U.S. dollars and that's the currency in which mortgage bond payments are made.

So, it makes sense that mortgage rates rise when the Fed cuts the Fed Funds Rate. By stimulating the economy, the Federal Reserve is making long-term inflation much more likely.

Some people think the Federal Reserve is the fool in the shower right now but the FOMC voters don't seem to care. They are more concerned with relieving short-term pressures on the economy and will deal with the outcome later.

Even if it is runaway inflation.