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Banks increase prime lending rate after Fed hike announcement

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Banks increase prime lending rate after Fed hike announcement

After a long hiatus, big banks raised their prime lending rate after the Federal Reservefinally elected to increase the federal funds rate.

An article in Bloomberg by Jennifer Surane and Matt Scully explained the impact of banks raising their prime lending rates.

Prime rate is what banks charge their best commercial customers, but it also affects credit cards and home-equity loans, the article noted.

From the piece:

“(Banks have) been battling net-interest-margin compression for many years now, and this is a chance to get some relief,” Goldberg said Thursday in a telephone interview. “It should be beneficial to revenue and earnings because your adjustable-rate and floating-rate assets will reprice higher and banks will lag in terms of increasing what they pay out.”

“For the first time in 10 years, there’s reason to be optimistic about the bank sector,” said Michael Rose, an analyst at Raymond James Financial Inc. “The banks have had a good run since the election, but I think there’s reason after this run to continue to be optimistic.”

However, the news is coming at a price to future homeowners. The article also stated that mortgage lenders, including banks, are bracing for a subdued year in 2017 as applications are expected to fall.

Freddie Mac Chief Economist Sean Becketti noted in the last rate report that the FOMC rate increase was almost-universally expected.

“However, the experience of this year combined with the policy uncertainty that accompanies a new administration suggests a wait-and-see outlook,” he said. “If rates continue their upward trend, expect mortgage activity to be significantly subdued in 2017.”

The Bloomberg article also added that the recent increase in rates has led to a clear slowdown in refinance activity that will impact both the fourth quarter and 2017. The most recentMortgage Bankers Association Weekly Mortgage Applications Survey reported that the refinance share of mortgage activity now sits at only 57.2% of total applications.