Behind the mystery: What the Fed does, and why

The Federal Reserve building in Washington, D.C. plays host to FOMC meetings.

Confused by what exactly the Federal Reserve does and what it all means? You're not alone.

Yet decisions made by the Federal Open Market Committee on when to raise, lower or leave interest rates unchanged affect every consumer, every business and every transaction made in the United States. The Fed's impact is like water or air, seeping into everything.

The Fed committee meets once every six weeks to vote on whether to adjust the central bank's interest rates or leave them unchanged, based on a variety of economic factors and trends. When interest rates are raised, the cost of taking on any new credit rises for borrowers or businesses, along with it slightly higher risk.

When interest rates are lowered, it makes borrowing money more attractive to consumers and businesses because the cost and risk is also lowered. Lower interest rates have the effect of stimulating economic growth: This is the key reason Fed officials have kept interest rates low since the beginning of the Great Recession.

The big question now is when the Federal Reserve policymakers will ultimately decide the economy is ready to sustain rate increases. It was widely speculated that such a change would come earlier this year - it hasn't yet, due to fears of untimely negative consequences on economic recovery.

The FOMC meeting ending today resulted in no changes, as expected. However, by the next Fed meeting coming up in December, committee members might finally decide it's time for a change.

Mixed signs on U.S. economy spell mixed forecasts

Interpreting economic news depends how you spin it

Good news: Gas prices are remaining low - this is good for consumers, at least. Also good news, the U.S. budget tightened its deficit to the smallest gap in eight years in part due to higher tax revenues.

Bad news: The lack of gains on energy prices are helping keep consumer prices low, along with worldwide economic struggles. These are some factors preventing the U.S. economy from experiencing more robust, steady growth.

With a still-strong U.S. dollar in the mix as well, inflation remains low. An inflation rate around 2 percent has been targeted by Federal Reserve officials before raising central interest rates, which have been stuck at 0 since the beginning of the Great Recession in 2008.

The absence of more dramatic economic growth has prompted some policymakers to suggest using negative interest rates as a tool to drive the economy further. This is a huge departure from the more widely expected increase in rates by the end of 2015.

To be certain, the idea of sending central interest rates below 0 is not popular with everyone, and it is more broadly expected that rates will instead begin rising in the next six months. Some analysts expect the first rate hike to come by this December.

What does all this mean for mortgage interest rates? Currently, mortgage rates are very attractive for most borrowers amid uncertain economic signs. More likely than not, they will start moving upward in the months to come. Please contact a licensed Loan Advisor at Vertex for more information on taking advantage of today's rates by calling toll-free 877-939-0339.

New TRID rules: What you should know

 

New guidelines go into effect Saturday, Oct. 3rd

Today marks the first day of a new era in mortgage lending: It's the rollout of the new federal TRID rules intended to make the mortgage process more plain and transparent for borrowers.

TRID, which stands for TILA RESPA Integrated Disclosures, is the brainchild of the Consumer Financial Protection Bureau as mandated by the 2010 Dodd-Frank banking reform act to help consumers better understand the application process and terms of their mortgage loans.

The primary changes include implementing a Loan Estimate and Closing Disclosure at the beginning and end of the application process, respectively. These disclosures will replace the Good Faith Estimate and HUD Final Settlement Statement in an effort to more clearly explain mortgage terms. All mortgage lenders and brokers will be required to disclose each of those forms within a three-day period so the borrower has time to understand the terms.

At Vertex, we will be complying with the new regulations fully in accordance with the official Oct. 3, 2015, start date. Many lenders will provide their own LE (Loan Estimate) and CD (Closing Disclosure) forms, which will be provided to borrowers for review within the mandatory three-day periods. It is always our goal to assist borrowers in completely understanding the mortgage process and loan terms, as well as to help you achieve your specific financial goals.

As with any change, there is bound to be some confusion over changing guidelines. Should you have any questions about how this affects your mortgage application process, please do not hesitate to contact a Vertex loan advisor or processor by email or calling toll-free 877-939-0339.