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What’s going on in the mortgage industry? Are rates at Zero?

As many of you are aware, recently the Federal Reserve cut interest rates to near zero in an emergency effort to support the economy during the COVID-19 pandemic. You might be wondering how this helps the economy.

The Federal Reserve hopes that aggressively reducing interest rates to between 0% and 0.25%, down a point from where it had been previously, will help support the financial markets.

It is important to note that just because the Federal Reserve reduced short-term rates, that does not mean that mortgage rates will follow, as we have experienced in recent days.

In fact, mortgage interest rates have actually trended upwards over the past week, even after the 10-Year Treasury rate dropped (typically mortgage interest rates reflect the 10-Year Treasury rate.)

So why did that happen?

Here’s the simple answer:

Rates have been trending downward for months, triggering consumers to either purchase a home or refinance their current mortgage. For the first two months of 2020, an average of $3.9 billion in mortgages was originated daily. That average doubled to $7.8 billion in the first two weeks of March and then peaked to $13.1 billion on Tuesday, March 10th as mortgage rates hit all-time lows. As Chip Glover, the Chief Operating Officer at TowneBank Mortgage puts it, “the demand for mortgage loans grew so fast, that the supply channels overheated, so to speak.”   

Chip went on to explain, “the vast majority of mortgage loans in this country end up in Mortgage-Back Securities, known as an MBS. Lenders like TowneBank Mortgage sell their loans to investors and the loans eventually get converted into an MBS security. With rates declining so quickly and loan volumes so high, the investors did not like the low yields being offered on the securities (they want a certain return on their investment) and they quit buying the securities. This lack of liquidity (buying and selling of MBS) resulted in the mortgage market getting jammed up and rates started rising.”

The bottlenecking is expected to pass, as the market stabilizes and perhaps allows rates to drop again.  

So, what does this mean for consumers who are looking to purchase or refinance now or in the near future?

Consumers need to realize that rates, while maybe not at their record low, are still quite good and trying to predict the interest rate market is tricky (there are professionals that get it wrong every day). If the consumer is satisfied with the current rate available, then why wait for a possible decline in rates that may not materialize? However, if the consumer wishes to wait, it might be a good idea to go ahead and submit an application with all the necessary loan documents so that you can lock in your rate when ready.  

You can do all of this from the comfort of your home through our secure mobile app or desktop platform. Don’t worry, you’ll still have access to your loan officer through text, phone, or video messaging.

And even if our workers aren’t technically “at work,” (we’re social distancing) we are still hard-at-work making sure that you receive the attention and service that you deserve when it comes to your home financing.

The information contained herein (including but not limited to any description of TowneBank Mortgage, its affiliates and its lending programs and products, eligibility criteria, interest rates, fees, and all other loan terms) is subject to change without notice. This is not a commitment to lend.

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