Wednesday the Fed announced they were going to help stimulate the credit markets and increase liquidity by purchasing over $700 billion in mortgage backed securities (MBS), double what they originally stated. This announcement resulted in a very large run up in Mortgage Backed Securities as well as a steep drop in the treasuries. The combination of these two factors are very favorable to a decrease in mortgage rates. Wednesday MBS increased by 132 basis points. A normal day would see a movement in the range of 10-20 basis points so the increase was substantial. We received numerous emails from our rate services forecasting very large decreases in mortgage rates. Thursday rates did drop between 1/4% to 1/2% with different lenders to a low of 4.875%, but we were actually expecting even bigger decreases. Today (Friday the 20th of March) as I write this post at 10 AM, rates are INCREASING and giving back some of the gains made on Thursday.
The most likely reason for this is due to the lack of manpower at the various wholesale lenders. Over the last two and a half years over 300 lenders and brokers have ceased doing business. At the same time those who remained in business were cutting their workforce drastically. Therefore, you have fewer lenders with fewer workers and fewer investors buying loans. When any sudden and significant drop in interest rates occurs, these lenders become overwhelmed with new loans and cannot cope with the volume in new business. Today the average loan can take 45-60 days to close. And if you are dealing with a foreclosure or short sale it can easily take 3-4 months. Lenders will raise rates back up to slow the market down until they can get a handle on things.
And let's not discount the potential for profit. If all the other factors remain the same, by increasing wholesale rates and not passing on the the lower rates to consumers, the lenders make more money.
The feeling is that rates will gradually decline over the next 6 months with temporary increases from time to time so the lenders can keep up with the demand. If you are looking to apply for a mortgage any time soon and your loan officer contacts you about declining rates it might be wise to take the bird in the hand. Trying to get the absolute lowest rate is no different than trying to time the stock market, it's nearly impossible. Rates could well drop into the low to middle fours this year. But they could just as easily go higher. There is no guarantee either way.
The affects of a global economy make the financial markets unpredictable.
I don't know about you, but I'm not a gambler.
Just my 2 cents.
The most likely reason for this is due to the lack of manpower at the various wholesale lenders. Over the last two and a half years over 300 lenders and brokers have ceased doing business. At the same time those who remained in business were cutting their workforce drastically. Therefore, you have fewer lenders with fewer workers and fewer investors buying loans. When any sudden and significant drop in interest rates occurs, these lenders become overwhelmed with new loans and cannot cope with the volume in new business. Today the average loan can take 45-60 days to close. And if you are dealing with a foreclosure or short sale it can easily take 3-4 months. Lenders will raise rates back up to slow the market down until they can get a handle on things.
And let's not discount the potential for profit. If all the other factors remain the same, by increasing wholesale rates and not passing on the the lower rates to consumers, the lenders make more money.
The feeling is that rates will gradually decline over the next 6 months with temporary increases from time to time so the lenders can keep up with the demand. If you are looking to apply for a mortgage any time soon and your loan officer contacts you about declining rates it might be wise to take the bird in the hand. Trying to get the absolute lowest rate is no different than trying to time the stock market, it's nearly impossible. Rates could well drop into the low to middle fours this year. But they could just as easily go higher. There is no guarantee either way.
The affects of a global economy make the financial markets unpredictable.
I don't know about you, but I'm not a gambler.
Just my 2 cents.
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