In a speech, last night Fed Chairman Bernanke said resurgent financial strains have dimmed the outlook for growth in the U.S economy.  Bernanke’s comments are considered by many to signal a 100% probability that the Fed will cut short-term interest rates by at least 25 basis-points at the upcoming Open Market Committee meeting on December 11^th.

I think it is important to note that the bond and mortgage-backed security markets have already priced-in a December rate cut of 25 basis-points and are well along the road to pricing in a 50 basis-point rate cut.

If you’re looking for additional rate and price improvement following the official monetary policy decision announcement on December 11^th I’m afraid you may be disappointed. The risk is that you’ll be sharply disappointed if the Fed chooses to cut short-term rates by 25 basis points.

It is almost always surprising data or events that catch a large number of traders leaning in the wrong direction that causes big price and rate swings in the mortgage market. Experienced market participants (those that have been burned more than once) tend to live by the old market saw that says, Buy the rumor ¦ sell the fact.

Looking ahead to next week traders will be nervously fidgeting with their positions ahead of Friday’s November nonfarm payroll report (scheduled for release at 8:30 a.m. ET).

The general consensus among market participants I’ve talked to is that a headline payroll number less than 80,000 together with a national jobless rate that bumps up to 4.8% ( currently 4.7%) will make a 50 basis-point rate cut from the Fed the following Tuesday much more likely.  If the headline payroll number exceeds 110,000 and the jobless rate doesn’t budge from 4.7% — most believe the Fed will choose to be more cautious cutting short-term rates by only 25 basis points.

In case you weren’t aware of details of a government-sponsored plan to temporarily freeze interest rates on certain troubled subprime loans may be announced as early next week.

In general, the government and a coalition of mortgage-related companies and private alliances have largely agreed to extend the lower introductory rate on home loans for certain borrowers.

Exactly which borrowers will qualify for the freeze and how long the freeze will last are yet to be determined. I’ll keep you posted as this developing story gains more detail.

If you would like to apply for a Mortgage Loan, you can APPLY ONLINE HERE, you can call John Thomas at 302-703-0727.

John R. Thomas – NMLS 38783

Certified Mortgage Planner – Primary Residential Mortgage, Inc.

302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office

248 E Chestnut Hill Rd, Newark, DE 19713