As a mortgage company, we receive a lot of inquiries regarding mortgage rates, refinancing and, most recently, “about that 0% mortgage the FED is offering.”
Sadly, there is no 0% mortgage, and the FED doesn’t set mortgage rates. But, people should still inquire as to whether they have an opportunity for savings.
What has happened over the last 45 days is a literal roller coaster in both mortgage rates and mortgage qualification requirements. What caused this see-saw?
Earlier this year financial markets and investors started to get concerned about the global impact of COVID-19. This caused investors to move to “safer” investments, such as U.S. Treasuries and Mortgage-Backed Securities (MBS). The resulting demand for MBS created a drop in mortgage rates to “the lowest level in its nearly 50-year history,” according to Freddie Mac’s chief economist.
The seven days between Feb. 26 and Mar. 4 were the busiest days in the business for just about every mortgage professional I know. And, the weeks following the resulting massive spike in applications also saw a huge spike in mortgage rates.
In some cases, mortgage rates changed up to 2% in a single day for consumers! While the causes are complicated, the two major reasons why we saw this volatility was because lenders were unprepared for the huge spike in loan volume, and consequently had to increase rates to SLOW DOWN applications, so they could catch up.
The underlying MBS was changing rapidly, and there was a glut of product being offered, which lowered the value of the individual offerings (supply and demand). A number of lenders stopped accepting refinance applications altogether, as they focused on a more sustainable “purchase money mortgage” business model.
The concerns related to COVID-19 expanded as businesses started to close down and workers were laid off due to government mandates related to social distancing. Investors had new concerns as they worried about how mortgage payments would be made when homeowners didn’t have jobs.
Financial markets in the U.S. started to crash, and so the Federal Reserve Bank (FED) jumped in with an influx of liquidity and a couple of reductions to the federal funds rate. A second wave of refinance inquiries hit as borrowers called their loan officers again about taking advantage of this 0% FED rate being offered.
It was left to loan offices to explain that the federal funds rate is the rate at which the FED lends short-term funds to banks. Mortgage rates were actually still on the rise after those announcements, because with so many loans being refinanced, the value of servicing rights that lenders earn started to shrink drastically, and they realized they wouldn’t hit their break-even point on an increasing percentage of their holdings.
The mortgage market, as a whole, has seen a number of changes due to the impacts of the coronavirus. There has been a major tightening of requirements as secondary markets have dried up, or set significantly more restrictive requirements lending requirements.
This tightening caused many well-established lenders to stop accepting new loan applications, some other to cancel loans that were in process prior to funding them, and others to close their doors entirely. The impact was, and is wide-reaching, including some Florida-based banks and credit unions.
While the impacts of COVID-19 are still creating change in the mortgage industry, there is an opportunity for borrowers who can meet updated requirements like multiple checks to verify employment and requiring clients to certify that their income/earnings have not been impacted. Borrowers with lower credit scores also have more requirements placed on them, as lenders are adding guideline requirements to government-insured loans (FHA, VA and USDA).
In 2019, there were significant reductions to the cost of mortgage insurance, so if your loan still has mortgage insurance and your rate is in the high 3% to 4%, you might still save significantly by refinancing your mortgage. Mortgage rates are stabilizing, and while not as low as they were back in late February, there is a major opportunity for individuals to save, including some ridiculously low mortgage rates on 15-year loans.
These are the kind of rates that may not be available again. So, if you are interested in a new or refinanced mortgage, reach out to a mortgage broker who will shop the markets for you. Generally, you’ll find that an experienced mortgage broker has more options available to you than your local bank, because of their independence and desire to ensure you get the best mortgage for your situation.
By Gilbert Bennett
My Easy Mortgage, LLC
Licensed Mortgage Loan Originator
Certified Military Loan Specialist
NMLS # 1177528 | CO NMLS # 1268485
Published April 29, 2020
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