Published March 24, 2020
Are Mortgage Rates Going Down? When Will Mortgage Rates Go Down?
Everyone is asking about the status of mortgage rates. There is still a lot of old news floating around about low rates. The media is beginning to catch up to the reality of higher rates in the past couple of weeks.
I hope the article that a lender colleague wrote below will help explain things. Feel free to contact us at The Danae Aballi Team, or this lender, Rick Cirelli (contact info at bottom).
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So, the Fed lowers rates and mortgage rates go up! How can that be?
The first thing that needs to be understood is that nearly all mortgages are NOT retained by the lender that originates the loan. Your mortgage is bundled with many others creating a Mortgage-Backed Security (MBS) that in turn is bought and sold by investors which may include Wall street investment banks, hedge funds, mutual funds, the Government and other institutional investors. The Lender that originates your loan or the one that you make your payment to is the “Servicer” of your loan. They merely collect your payments, pay the investors, pay your taxes and insurance if applicable, and retain a small piece of interest received as their “servicing fee”. You probably have no idea who really owns your loan. You only know who services it.
If you understand this concept, then you realize that it’s not the Fed nor banks and other lenders that controls mortgage rates, it’s what the investors that buy mortgage-backed securities will do, that matters. If there’s a strong demand for MBS, rates go down. If there is a lack of demand, rates go up.
So, what happened when the Fed lowered the Federal Funds Rate? The intent was to drive down all other rates. But, so far, it has had the opposite effect. Why? Because the demand for MBS has been reduced. The reason is simply that these investors can buy other securities such as Treasury bonds that are a safer investment. MBS are riskier because the ability of borrowers to make payments is dependent upon their income and employment which may be impacted by the economy. And if rates go down a short time later, borrowers will refinance thereby reducing the future value of the MBS that they just bought.
Will Mortgage Rates Come Down?
Yes, in all probability, the rates for many mortgage programs should come down in the coming days and weeks, particularly loans that are sold as MBS to the Government Agencies known as Fannie Mae and Freddie Mac. The US has committed to buying MBS made up of “conforming” loans that meet their underwriting and loan limit criteria. In much of the California and the Hawaii markets, that limit is up to $765,600. Jumbo Loans and loans that use “Alternative” documentation to qualify will be impacted more severely because it is Private institutions, not the Government, that buy these Securities. So, for these products, it comes back to the “demand” and “risk” associated with these loans that will dictate the interest rate on these loans.
It was refinancing and borrowing money at historically low rates that helped the economy recover during the last recession that began around 2008. The Fed and our Government leaders need to depend on low rates to recover from this recession too. The cause is different this time, but the impact has similarities. They must do what is necessary to reduce the economic burden that we are facing.
What Should You Do?
Most experts and I strongly predict that mortgage rates will come down in the coming days, weeks and months. If you wait until they do, you may miss the window of opportunity.
Start your application now.
Provide the documentation that we will need to process your loan.
Allow us to monitor rates while we process your loan. We can lock it later when rates hit a target rate that makes the most sense for you.
Be patient. Most lenders were backlogged just before the Fed rate cut and artificially raised rates to slow down their volume. Now, employees in most companies have to work from home possibly making the process slower and less efficient. The same is true for all the other service providers that we depend upon such as appraisers, notaries, escrow & title companies, etc.
As an independent mortgage broker and banker, we deal with many lenders. We know which ones have the slowest underwriting times, the pickiest underwriters, and the best rates.
Get ahead of the massive refinance explosion that is expected by making your application NOW! By doing so, your application will be ahead of others.
If you have questions and need advice, contact me at 949.494.4701 or rick@rtcmortgage.com.
Here is a link to our online Loan Application. It only takes a few minutes to complete and helps to give you a head start: https://RickCirelli1.zipforhome.com
header photo: Photo by Sylvie Tittel on Unsplash
