Market

• Competition among financial institutions, inflation, and buyer demand for 30-year fixed-rate products can influence fixed rates. The operational performance of banks and corporations also can cause lower 30-year fixed rates. For example, a profitable bank with a large amount of cash reserves is more likely to be able to offer lower rates on its 30-year loans to increase clientele and market positioning.
  
  

Securities

• Prices of mortgage-backed securities such as mortgage bonds affect 30-year fixed rates, because they lower mortgage-buying costs for dealers. In other cases, demand for government 30-year fixed-rate bonds and 10-year U.S. Treasury notes may reflect economic conditions more than causing rates of other financial instruments to fall. The Federal Reserve Bank of San Francisco helps corroborate this by stating that 10-year Treasury notes are correlated to mortgage rates, meaning they follow a similar price pattern.
  
  

Policy

• The Federal Reserve has a significant, yet indirect, influence on whether 30-year fixed rates will fall. It can do this with a number of monetary policy tools. For example, open market operations allow the central bank to purchase mortgage bonds, which can lower mortgage bond and mortgage rates. The central bank also can lower short-term lending rates, which may decrease 30-year bank lending rates and corporate bond rates by reducing shorter term loan costs.
  
  

Legislation

• Legislation such as the American Recovery and Reinvestment Act made possible refinancing programs that lower 30-year fixed rates on mortgages. For example, the Home Affordable Refinance Program (HARP) and the Federal Housing Administration facilitate refinancing of loans for borrowers whose homes are worth less than their mortgage. Additionally, usury laws, which are laws designed to protect consumers, can lower rates by requiring lenders not to exceed a maximum rate via court judgment or legislation.
  
  

Myth

• The actions of government-sponsored enterprises (GSEs) have limited influence on national mortgage rates, such as 30-year fixed rate loans, according to a Federal Reserve study. Moreover, according to research reported by the Federal Reserve Board Divisions of Research and Statistics and Monetary Affairs, GSEs such as Freddie Mac, a national mortgage dealer, have minimal influence on mortgage rates via buying and selling of mortgages in the secondary mortgage market .