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Operating as usual
The Fed Rate is at 0%, mortgage rates must be lower, right?
Mortgage rates are not driven by the Fed. The Fed Funds Rate is a different animal than the mortgage rate. It applies to loans with a term of up to 1 day. That's a far cry from the average mortgage, and investors approach those loans with completely different sets of priorities. That's why we sometimes see longer and shorter term rates move in OPPOSITE directions (which accounts for the "inverted yield curve" phenomenon that made news in 2019 when 10yr Treasury yields were lower than all of the short-term rates under 2 years, including Fed Funds).
But even if long and short term rates always moved in the same direction, there's a more important reason that mortgage rates might not follow the Fed. The bonds that dictate mortgage rates trade thousands of times a day. Mortgage lenders themselves update their rates at least once a day. In contrast, the Fed only meets to consider changing its rate 8 times a year, barring emergencies. This means mortgage rates can and do move well in advance of Fed rate changes. Indeed, the behavior of longer-term rates like mortgages can often predict the market conditions that prompt the Fed to make a move.
Why have mortgage rates not dropped as much as the 10 year Treasury? The answer is both simple and complex.
The simple reason are margins at mortgage companies. The fastest way to control production is with pricing. When loans are hard to find, lenders cut margins to increase production. With the phone ringing off the hook and many mortgage shops well above capacity, lenders are taking this opportunity to increase margins for a change. Few have the stomach to hire staff hoping for a prolonged refinance binge. As their pipelines swell watch for rates to rise.
The complex answer brings in investors of Mortgage-Backed Securities.
Volatility is both disruptive and expensive. When an investor purchases an MBS they have certain assumptions on how the loans will pay off. When rates go into a free fall and investors see loans refinance from pools that are only months old, they grow cautious. Worse yet is if the price of the MBS was above par, the investors takes a direct hit. Mortgage rates can only fall as far as investors are willing to purchase them.
Fear of the coronavirus sent buyers into safe assets. The US 10-year Treasury is considered the bellwether of safe assets and thus attracted more buyers than MBS’s. Throw in higher margins and worried investors and the reason rates have not fallen in line with the 10 year makes more sense.
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mortgagenewsletter.net Mortgage rates improved today, depending on the lender and the time of day! Underlying bond markets were only modestly stronger in the morning. As such, the average lender only offered modest improvements over yesterday's rates at first. But as the day progressed, market volatility favored bonds. On...
[04/22/19] It's a hot market out there, call me to get prequalified today!
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Whether you are purchasing a new home, refinancing your current home or looking to do a reverse mortgage, let me find the best mortgage for you. Because we are a broker, I can shop multiple lenders to get the best rate and terms for your mortgage. We in house process so I will be with you every step of the way and I am always available to answer any questions you may have along the way.
If you are buying a home, let me get you prequalified so that you can put in a solid offer on that house of your dreams. Refinancing, whatever the reason, I will be happy to run scenarios for you so that you can see what mortgage will be right for you.
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Vital Funding is the experienced, professional financial service that GETS YOU CASH. Our service is fast and efficient. If you are the owner of an owner financed mortgage note(s) or have a settlement or annuity, we can pay you CASH for them.
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At Homespire Mortgage, our mission is to open the doors to homeownership by simplifying the mortgage process for our clients and by providing affordable mortgage solutions, while delivering exemplary and highly rated client services.
I'm C Frank Acevedo, NMLS: 305851, Senior Mortgage Loan Officer with PrimeLending, a national mortgage lender making the home loan process simple.
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PrimeLending is a national mortgage lender known for making the home loan process simple, clear and quick.
TrustMor is a full service independent mortgage banker and broker with access to mortgage products from a large base of investors. TrustMor Mortgage Co., LLC . NMLS # 93789 (nmlsconsumeraccess.org).
Home Equity Conversion Mortgage Financing. Equal Housing Lender. NMLS# 323016
The Richmond Residential Group of Prosperity Mortgage is a team of licensed Residential Mortgage Consultants located in central Virginia. To discuss your home financing options, contact us at (800) 582-3516.