Do politics mix with loan rates?

A chicago home buyer or mortgage borrower seeking to refinance in 2026 likely is wondering why the hard-working head of the Federal Reserve Board is being kicked around like a political football. it might be President Donald Trump doesn’t like that Fed chairman Jerome Powell and other knowledgeable board members are slow to react to his bullish demands for lower interest rates.

in fairness, previous U.S. presidents have grumbled about Fed actions, because electoral fortunes tend to rise or fall with the state of the economy.

When President Ronald Reagan was in the White House in 1981, this writer vividly recalls former Fed chairman Paul Volcker dramatically hiking mortgage interest rates to a record 18.63% on a 30-year fixed home loan to combat inflation. And, shocked chicago home builders marched to Washington D.c. to lobby congress for lower rates.

By 1985, thanks to Volcker’s aggressive action, mortgage rates fell back to a more affordable 11% to 11.75% range, and the housing market bounced back.

History aside, the current Fed chairman, Powell now is under “criminal investigation” by the Justice Dept.-an attack tool of the president-in connection with the rising costs of the multi-billion dollar renovation of the Fed’s historic Washington, D.c., office buildings.

in a video statement last week, Powell said the probe is a threat to the independence of the Fed, and refused to buckle under. He was backed by former Fed chairs Alan greenspan, Ben Bernanke and Janet Yellen and a bipartisan group of economic luminaries.

President Trump’s bullying criminal investigations against Powell cast another dark cloud over the nation’s mortgage market.

“Political action related to the potential loss of Federal Reserve independence could cause interest rates to rise,” observed veteran mortgage broker Jeremy Rose, senior lending specialist for Stonehaven Mortgage. “This uncertainty is currently causing the mortgage markets to have indigestion.”

Powell’s term ends in May of 2026, and Trump’s replacement, if approved by congress, will have to deal with the aftermath.

going forward, Powell will retain a position on the Fed’s board of governors until 2028, so he likely will continue to have an influence on the direction of interest rates.

Both Sen. Thom Tillis [R-Nc] and Sen. Lisa Murkowski [R-Ak] condemned the effort to intimidate Powell. Senate Banking committee member Tillis threatened he would not vote to confirm any of Trump’s future Fed board nominees if the Powell legal threat continues.

interest rates were raised by Powell to slow down inflation created by massive government deficit spending during the pandemic. Renowned US economist Milton Friedman in 1994 noted that, “in- flation is always and everywhere a monetary phenomenon.” That price levels increase when too much money is pumped into the economy due to excessive credit demand. Too much money chasing too few goods and services.

Like chicago, cook county and illinois, the Federal government has a spending problem. Total US Debt at the start of the 2008 banking crisis, and federal bailouts - leading to “quantitative easing”, i.e., spending - was about $10 trillion. in the 17 years since then our debt has grown to $39 trillion. This is an unsustainable level of federal deficit spending.

Mortgage rates hit 3-year low Despite President Trump’s criticism of high interest rates, they continue to slowly fall.

On Jan. 15, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed home loan interest rates hit an average of 6.06%-the lowest level in three years. A week earlier the rate was 6.16% and a year ago it was 7.04%, so maybe Powell really is doing his job.

“The impacts are noticeable, as weekly home purchase applications and refinance activity have jumped, underscoring the benefits for both buyers and current homeowners,” said Sam khater, Freddie Mac’s chief economist.

“it’s clear that housing activity is improving and poised for a solid spring sales season.”

Fifteen-year fixed mortgages averaged 5.38% on Jan. 15, down from 5.46% a week earlier. A year ago, the 15-year fixed loans averaged 6.27%.

The survey is focused on conventional, conforming, fully amortizing home-purchase loans for borrowers who place 20% down and have excellent credit.

Unfortunately for would-be buyers, prices have continued to creep upwards, and the trend of slow existing home-sales inventory continues to drag because tens of thousands of owners are hanging on to existing 2%, 3% and 4% mortgages.

Sales of previously occupied U.S. homes totaled only 4.06 million units last year, flat versus 2024, when sales sank to the lowest level since 1995, reported the National Assn. of Realtors.

On the positive side, Rose noted that a borrower in chicago who earns $94,080 or less and has decent credit can qualify for a mortgage at 5.87% through the Fannie Mae “Home Ready” program or the Freddie Mac “Home Possible” program. Both plans are designed to make home financing more affordable.

“it practically equates to an interest rate of about a 0.375% of 1% under the mortgage rate for borrowers whose income is above the threshold,” Rose explained.

“For borrowers who earn above the $94,080 income threshold, it may be possible today to qualify for a mortgage at 6.0125% with little to no closing costs,” Rose said. Typically, closing costs-including an ap- praisal, title insurance charges, and lender fees-run $3,200 on a $400,000 loan, Rose said.

Some borrowers ask: What about mortgage interest-rate buydowns? is it worth paying 1% of the loan amount to get an interestrate buydown? That’s $4,000 on a $400,000 loan.

“Today, a rate buydown typically is not ideal because of the time needed to recoup the cost and doesn’t really make sense,” Rose advised. “i believe there are better uses of a borrower’s money, such as having cash in hand.”

While rate buydowns are still being offered by sellers and developers, Rose said lender-funded paydowns are more popular now. “However, with rates lower this year than last, more borrowers are just opting for traditional fixedrate mortgages,” he said.

For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.