I just finished reading an article about how fixed-rate mortgages are set. They are based on the 10 year Treasury bonds that are traded in Chicago. The people that fund mortgages (hedge funds, institutional investors and even regular individual investors) use the Treasury rate as a guide and the mortgage interest rates adjust accordingly.
So, as many people believe, the Federal Reserve does not, in fact, have much influence on mortgage rates. They control the supply of cash through fixing an overnight rate that banks use to loan money to other banks.
The most useful take away from the article is how to spot a deal on either a 15-year fixed-rate mortgage or a 30-year fixed-rate mortgage based on where they are trading today.
