Interest Rates Stable

Banks Not Passing Along Rate Drop?

After a dramatic drop late Wednesday, 30-year mortgage rates have leveled off at 4 5/8% at the moment. Given the size of the Fed commitment -- up to $1 trillion in new cash aimed at mortgages -- you'd expect rates in the low 4's.

Why hasn't that happened (or at least, not yet)?

Here are the reasons being bandied about:

One. There are now many fewer lenders, so they aren't competing as hard for loans (you compete for business by offering the lowest rates).

Two. The lenders still out there are understaffed, and use interest rates as a spigot to increase or decrease loan (and refi) applications. When they're overwhelmed, like they are now, they raise rates (or don't pass along savings).

Three. Banks aren't passing along savings because they're wounded and need to replenish their capital (undoubtedly true, especially for the biggest banks).

The real explanation is probably a combination of all three of these factors; the exact mix likely varies by bank.

Ultimately, mortgages and prevailing interest rates sure seem a lot like gas prices and the price of a barrel of oil: increases show up at the "pump" immediately, while price drops reach consumers more slowly . . .