What does that mean to mortgage rates?

Important news from our lending partner Debbie Leviton of Caliber Home Loans (NMLS #38381), originally published by MortgageNewsDaily.com.

The Fed did not just cut mortgage rates. Here is what we know after the Fed’s made their recent announcement:

 The Fed Funds Rate:

The Fed funds rate doesn’t directly affect any mortgage rates apart from home equity credit lines.  While it often moves in the same direction as the traditional 30yr fixed mortgage rate in the long run, there are months and even years of time when they seemingly have nothing to do with each other. 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. 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 (like Sunday).  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. 

Bottom line: The bond market (which includes mortgages rates) has been able to react to coronavirus implications for weeks, and the fed is just getting caught up to market realities

The New QE: Quantitative Easing (the term for the Fed’s large-scale bond buying programs designed to lower interest rates and encourage free flow of lending/capital).

The Fed did indeed announce new mortgage bond buying as a part of its QE package on Sunday.  This will help restore the correlation between 10yr Treasury yields and mortgage rates, but it WON’T immediately restore the normal space between the them. While mortgage rates definitely take cues from the broader bond market (especially when markets are relatively calmer), they move for several other reasons.  That caused a lot of head scratching this week as mortgage rates jumped at the fastest pace EVER while many savvy consumers were still waiting for them to drop as much as Treasury yields had dropped. One of the biggest reasons for the mortgage vs Treasury disconnect was a massive supply glut of new mortgage debt caused by rampant refinance demand recently. 

Bottom line: Mortgage rates have had no reason to move lower this past week and every reason to move higher. 

Where rates go from here will depend on where the bond market goes. To be sure, there’s a very good chance that yields will stay extremely low and move lower due to what many see as a fairly large and inevitable recession.  If that increasingly looks to be the case, mortgage rates will gradually return lower, BUT–and this is the important “but”–MORTGAGE RATES AREN’T DROPPING 0.50% TODAY AND THEY’RE NOT ANYWHERE CLOSE TO 0%.  They were a lot closer to 4% on Friday afternoon (many scenarios were pricing-out higher than that). By getting back into buying mortgage debt, the Fed is giving rates a fighting chance to head back toward all-time lows.  It definitely won’t happen overnight and it isn’t a guarantee and we  

Debbie’s Advice:

1. Locked loan in process:
   1. Consider yourself very fortunate to be locked and in line to close.  
2. Thinking about buying a home
   1. There will no immediate change to rates today. Rates are still low and could potentially go lower in the near future but your decision should be based on your needs and goals – not the mortgage rate environment.
3. Thinking about refinancing
   1. There is no immediate change or impact to mortgage rates currently. Get your loan application started at www.DebbieLeviton.com and apply now in order to put yourself in a position to lock your rate if/when rates do come down, because IF there is a drop in rates again, lenders will likely be overwhelmed once more and will not have time to do anything except help the clients who are already ready to go

We are learning and in this together – will keep you posted as we progress. 

Source: MortgageNewsdaily.com