Impact On Mortgage Rates Versus Fed Rate Cut To Zero Percent
BREAKING NEWS: Impact On Mortgage Rates Versus Fed Rate Cut To Zero Percent
The coronavirus pandemic has turned the global economy upside down, especially in the United States.
- The impact in the U.S. economy has affected corporations, small businesses, workers, and consumers
- The coronavirus outbreak started in December 2019 and has escalated to many state governors declaring a state of emergency in their states
- The Dow Jones Industrial Average plummeted from its February 2019 all-time high of 29,000 to under 19,000
- Many companies have ordered their employees to work from home
- The Trump Administration has been proactive, transparent, and has implemented a two trillion dollar stimulus package
- A week ago Sunday, the Federal Reserve Board has cut interest rates to zero percent in hope of a further downturn in the U.S. economy
- The 2020 financial meltdown was the fastest collapse in U.S. history
- The promising 2020 housing market forecast made a 180-degree turn and many fear a 2020 housing market crash
- Although the Fed cut interest rates to zero, many lenders are increasing rates due to liquidity problems and being at capacity with the massive influx of refinance mortgage applications
In this article, we will discuss and cover the breaking news on the Impact On Mortgage Rates Versus Fed Rate Cut To Zero Percent.
Negative Impact On Mortgage Rates Versus Fed Rate Cut To Zero Percent
The Fed cut interest rate to zero percent last Sunday, March 15th to avoid further economic panic due to the coronavirus pandemic.
- Many consumers are confused about the impact on mortgage rates versus Fed rate cut to zero percent
- Many homeowners called lenders to see if they can refinance their current mortgage to a new mortgage with zero percent
- Unfortunately, this is not how it works
- The Fed rate is different than mortgage rates
- The Fed rate would help consumers with credit cards, auto loans, HELOCs, and other consumer loans
- Mortgage rates often have a tendency to follow in the direction of the Fed rate
- However, with mortgage rates being at a 50 year low, the Impact On Mortgage Rates Versus Fed Rate Cut To Zero Percent is not much
- The Fed rate cut is good news for the economy. It means a lower cost of borrowing money for businesses
- The Fed also announced a $700 billion quantitative easing program
- This news by the Federal Reserve Board is the second interest rate cut in two weeks
The Fed cut interest rates two weeks ago to a range of 1.0% to 1.25% in between its regularly scheduled meetings.
What Experts Are Saying On The Impact On Mortgage Rates Versus Fed Rate Cut To Zero Percent
Many mortgage borrowers, as well as loan officers, are confused about why mortgage rates are skyrocketing when the Fed cut rates to zero percent. Michael Gracz of Gustan Cho Associates said the following:
When the Fed cut interest rates two weeks ago, mortgage experts noted that the central bank was catching up to where markets had headed. Mortgages respond to market forces and not to the Fed. The Fed is actually following and not leading when it comes to mortgage rates. Mortgage rates have tanked since the beginning of the year to the lowest average in 50 years as a result of market movements in response to the coronavirus. While the Federal Reserve adjusts short-term interest rates, mortgage rates fluctuate based on long-term bond rates. In particular, mortgage rates in the U.S. roughly track the direction of the yield on the 10-year Treasury note. The 10-year Treasury had fallen to all-time lows in recent weeks as investors fled to the safety of bond markets amid the downturn in equity markets. The continued downward movement in the 10-year Treasury would normally signal downward movement in mortgage rates. Where they stand now, Treasury yields suggest that mortgage rates still have some room to move lower. I wouldn’t be surprised to see 30-year loans with 3.0%rates before things settle back down.
Lenders are facing liquidity problems. Many lenders are at full capacity and do not have the manpower to take on more new mortgage applications. Many lenders have stopped taking new mortgage applications. The coronavirus pandemic has shaken the mortgage markets.
Mortgage Industry During The Coronavirus Pandemic Crisis
Mortgage rates are at an all-time historic low. However, lenders are increasing rates while some lenders have completely shut down lending. Borrowers who have 760 FICO or higher, 30% down payment and/or 70% loan to value on a single-family home can still get lower mortgage rates. However, the killer is loan level pricing adjustments. Most LLPA s used to be 0.125 to 0.25 basis points. However, LLPAs have drastically increased on just about everything. Under 700 FICO credit score borrowers can get a 100 basis point loan level pricing adjustment. The state of the mortgage industry is in chaos, to say the least. We expect mortgage rates to adjust to current market rates in the days and weeks to come.
Are Mortgage Rates Going To Drop?
Many non-QM lenders have suspended lending altogether. This is due to liquidity issues. One top non-QM lender has announced today they will suspend all lending for at least two weeks. It may be longer depending on them resolving the liquidity issues in the marketplace. Many borrowers who have their mortgages locked with this lender cannot close. They are not honoring even locked loans. Other wholesale lenders have suspended lender-paid compensation to mortgage brokers until further notice. Yet, a large percentage of lenders will not take mortgage-rate locks until the loan has been cleared to close. Will mortgage rates drop in the coming days? How long will this mortgage chaos last? Here are the questions that need to be answered before we can answer these questions:
- What kind of capacity do mortgage lenders have?
- Is there liquidity in the marketplace?
If you do not have the appropriate number of mortgage professionals to process mortgage loans, you do not have the proper capacity. Lenders who are at full capacity will not be lowering rates to attract more volume. They will be raising rates.