Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
On Wednesday, the Federal Reserve unanimously raised rates 0.25%. By the time you are reading this, it will be old news. While the 25-basis point increase was expected, their statement was surprisingly hawkish. The Fed upgraded their economic outlook from ‘rising at a moderate rate’ in May to ‘Rising at a solid rate.’ They said that the labor market is growing strongly, and the unemployment rate will continue to decline. The projected path for the fed funds rate is 2.4%. The Fed also raised their PCE forecast by 0.2% to 2.1% and the core to 1.9% – signaling growing inflation.
As such, a majority of policymakers are now expecting a total of four interest rate increases for this year, up from the previous estimate of three. Most significantly, Federal Reserve Chairman, Jerome Powell, said that he would begin press conferences following each meeting starting in January. This is very important because it means that the Fed can hike rates at any of those meetings, which is different than the conferences that were only done quarterly in the past.
Now that I got the economic jargon out of the way, I will try to explain what this means to the average person regarding their short-term and long-term finances. The rate increase is the seventh such hike in the past two years and it’s something that is slowly starting to have a lingering impact on the average person. For the most part, a typical consumer may see changes to their credit card rates, auto loan rates, home equity/mortgage rates and student loans. I think its fair to say that almost every household can see their monthly payments go up as a result. I think Greg McBride, the chief financial analyst at Bankrate.com said it best, “Over time, that cumulative effect is growing.”
I will highlight credit cards because they are already averaging 17% interest, which is the highest rate that it has been in years. The typical US family has a credit card balance of approximately $6,500. The total credit card debt has reached its highest point ever, surpassing the $1 trillion level in 2017, based on reports directly published by the Federal Reserve. According to WalletHub, the popular personal finance website, factoring in the six previous rate hikes, credit card users will pay almost $10 billion dollars more in 2018 for their credit debt. It goes without saying, that on higher balance loans such as mortgages, the payment increases for those debts that are tied to variable rates are even more significant.
We were in the midst of a sales meeting on Wednesday when we paused to see the Fed’s decision. We knew the 25bps was a given; we were looking for more insight beyond that. During the meeting, I had a side screen showing the real-time movements of mortgage-backed securities, stock, and 10-yr US treasury so that my team and I can see how pricing may be impacted. The fluctuations were volatile, but we already knew to be on the lookout for the thresholds and breaking points, knowing that swings don’t necessarily mean spikes in mortgage rates then and there. The 10yr UST jumped over 3% but settled down by the close of trading. Our clients were prepped in advance and knew our positions and guidance.
During a break, I looked at my phone and saw two missed calls from the same person. I recognized the number and realized it was a person that I was working with weeks back, who chose to go with another mortgage company with an offer that was “more appealing to him.” When I called him back, I found out that much to my cautioning in the first place, the other place kept “losing his paperwork,” delaying the process and would not be able to close his loan on time. On top of it all, he saw the headlines of the Fed Rate increase and was in a major panic. I calmed him down and confirmed that I would still be able to close his loan on time and explained his potential options with me – with the biggest discontent being that rates were now almost a ½ higher from when we initially spoke. Unfortunately, it wasn’t a result of the Federal Reserve’s decision, it was a result of his decision to go elsewhere with people who weren’t as forthcoming and competent with their knowledge and guidance. Sometimes you win. Sometimes you learn.
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