The Fed Rate Cut That Isn’t Helping Your Mortgage
- tylergkoski
- Oct 6
- 4 min read
They cut rates. Your lender didn’t.
Welcome to the mortgage spread trap—and the reason affordability isn’t improving anytime soon.
The Fed made headlines in September and October with a 25 basis point cut, the first since its historic tightening cycle. Most news outlets reported it as a victory for buyers. #refinancetoday! #mortgagetips! #savings!
But for most Portland homebuyers? Nothing changed.
Mortgage rates stayed pinned near 7%. Refinance activity barely ticked up. Homeowners hoping for lower borrowing costs were left scratching their heads. And buyers? Still stuck facing high monthly payments.
This post breaks down why.
1. The Surface Story: "Rates Are Falling"
Let’s start with the headlines:
On September 17, 2025, the Federal Reserve lowered its benchmark Fed Funds rate by 25 basis points (0.25%). Another cut is expected before year-end.
The goal? Loosen borrowing conditions and support a soft landing for the economy.
The public takeaway? Mortgage rates will fall. Buyers should rush in. Sellers should prepare for bidding wars.
The reality? Mortgage rates actually rose 75 basis points after the cut.
Why the disconnect? Because the Fed doesn’t directly set mortgage rates. And the forces driving current market rates are working against buyers, especially in many markets.
2. The Hidden Mechanism: MBS Balance Sheet Shrink
Here’s the part most real estate professionals and even lenders ignore:
While the Fed is cutting interest rates with one hand, it’s unloading billions in Mortgage-Backed Securities (MBS) with the other.
This is part of the Fed’s broader balance sheet reduction strategy (a reversal of the Quantitative Easing/QE programs used during the pandemic).
Less MBS buying = Less demand for mortgage bonds = Wider spreads between Treasury yields and mortgage rates.
That’s the mortgage spread trap in action.
With the Fed now a shrinking share of MBS demand, mortgage investors require more yield to take on risk. That means higher rates for you—even if Treasury yields fall.
3. Understanding the Spread Trap
Historically, mortgage rates hover 150-200 basis points above the 10-year Treasury yield. That’s the "normal spread." But in 2025? That spread is closer to 230-240 basis points.
In plain terms:
The Fed cut rates.
Treasury yields fell.
But the rate spread widened so much that mortgage rates stayed flat or even increased.
This divergence has big implications for buyers, sellers, and homeowners across many markets—especially in Portland, where high home prices and bond market volatility magnify every basis point.
At Grand Union, we don’t just follow Fed changes. We read the system mechanics. The mortgage spread trap isn’t just a data point—it’s a signal.
4. Why This Matters for Portland
a. Buyers Wait for Relief That Won’t Come
Portland homebuyers, encouraged by media headlines, are waiting for lower interest rates that never materialize. This delay causes missed opportunities in negotiation, especially as sellers become more willing to deal in Q4.
b. Sellers Expect Bidding Wars That Never Arrive
Meanwhile, sellers hold tight, expecting demand to surge with each Fed cut. But the mortgage market dynamics have changed. This creates a stalemate where neither side acts—and inventory stagnates.
c. False Scarcity, Real Missed Chances
The result? False scarcity. Listings don’t move. New construction homes get delayed. And well-qualified buyers lose valuable time waiting for the Fed to "fix" the market instead of engaging with what it actually is.
For homeowners exploring refinancing? Most are already locked into lower rates. The rate spread trap prevents the remaining few from accessing meaningful savings.
5. How to Buy Through the Trap
Most agents don’t talk about the Fed’s MBS policy. Or bond spreads. Or macro timing windows.
That’s where Grand Union earns trust.
Here’s how we guide clients through the trap:
Pressure-test every purchase. We run deal math based on current market rates, not wishful forecasts.
Work closely with loan officers. We align strategy with real-time rate movement and lock windows.
Negotiate before expectations reset. Sellers will recalibrate pricing as 2026 nears. We act before they do.
Leverage HELOC equity. For move-up buyers or investors, this moment creates rare opportunity for equity-funded purchases while others are sidelined.
In other words, we help you act on opportunities, not headlines, and navigate through the mortgage market with precision.
Conclusion: Financial Freedom Isn’t Found in Headlines
If you’re still waiting for a normal rate to return, understand this:
There may not be a return to the historic average. The new spread may be the new normal.
The Fed can cut all it wants—but unless you understand what’s happening in the bond market, you’ll miss the real opportunities.
Whether you’re a buyer, seller, or investor, the key isn’t timing the Fed—it’s timing the market mindset.
Let Grand Union show you how.
✅ Ready to act on data—not headlines?
Let’s build your rate-resilient strategy for Portland's market today. Schedule a consult with us and take the first step toward informed decisions and long-run success.
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