Patrick T. Fallon | Bloomberg | Getty Images
A sharp drop in mortgage interest rates triggered a sudden and unexpected refinancing boom that prompted lenders, large and small, to manage volume.
This stress in the loan market, as well as the increased risk for mortgage investors of all of these refinances, actually keeps mortgage rates higher than they could be.
The average rate on the 30-year fixed rate loosely follows the yield on the 10-year US Treasury bond, but it no longer follows. The 10-year period fell to another all-time low, but mortgage rates, while at an all-time high, are slower to fall.
Mortgage rates hit 3.11% on Monday, according to Mortgage News Daily.
“Demand has grown in a way that many lenders have never known,” said Matthew Graham, director of operations at Mortgage News Daily, who tracks rates every morning. “Some of them have decided to increase the rates in order to discourage new business. Others have completely stopped accepting new applicants.”
A borrower who called Bank of America on Saturday was told that there would be a two-hour wait to speak to a loan officer.
At Cross Country Mortgage, a small lender in Boca Raton, Florida, phones rang before 8 a.m. on Monday. They have increased the hours and are trying to find more staff to manage the volume, which is now three times the usual.
“It’s a real pandemonium,” said Matt Weaver, vice president of sales for Cross Country. “It’s a supply and demand situation. The industry is currently inundated with demand. Put it this way, we’re like The Home Depot during a hurricane.”
Weaver says his company is able to cut rates more than the big banks because it has less volume, but there are also unusual profit and risk scenarios.
“It is very complicated to know why mortgage rates are not much lower. One reason is that lenders are dragging their feet, more for profit reasons than for concerns about volume management,” a noted Guy Cecala, CEO of Inside Mortgage Finance. “If the costs of a lender’s funds – whether from MBS (mortgage-backed securities) pricing or deposits – decrease, but they keep mortgage rates higher than they normally would , they benefit from a larger deviation than normal.
Weaver agrees that lenders should monitor their profit margins, as well as the additional volume.
“In these difficult times, lenders have a duty to juggle the gap between market demand and the 10-year treasury,” said Weaver, who added that his business had to manage prices to ensure “profitability “. stay here. “
In large banks, the rates are slightly higher than in small lenders. Although no one we contacted comment on why, they did speak about the huge volume.
“We have suspended refinancing email marketing campaigns due to the thousands of customers who are already aware of the low rates and are requesting them on Chase.com,” said Amy Bonitatibus, director of marketing, Chase Home Lending.
A Wells Fargo spokesperson said they were stepping up their staff to deal with the attack.
“We continue to hire underwriters, processors and closings in our order processing group and we are also taking advantage of the opportunities to move team members from other non-processing groups to our order processing operation” said Tom Goyda, spokesperson for Wells Fargo.
And when it comes to rates: “Lenders take many factors into account when setting mortgage rates and are most directly linked to MBS yields, which have seen a widening spread from the Treasury yield at 10 years, “added Goyda.
Investors in mortgage-backed bonds are at increased risk because so many people refinance themselves. When a loan is refinanced, it is repaid early and the investor loses several years of return on the payment of interest rates. As risk increases, they will pay less for these bonds and, as a result, the return on MBS will increase – and mortgage rates will increase.
“Investors are so scared of what’s going on that they don’t care about yield and ignore the MBS and stick only to treasury bills,” added Cecala.
It will take “time and market stability” to bring mortgage rates down from the treasury to 10 years, said Graham.
“If these treasury yields become current, lenders can gradually lower mortgage rates without risking rampant reflex activity,” he said. “Ultimately, mortgages would return to a normal distance from treasury bills.”