The Fed looks at many factors when deciding to cut rates, including inflation rates, GDP projections, consumer sentiment, manufacturing output, retail sales, and more.
But there is one thing that will always make the Fed cut rates – an increase in unemployment. And, we’re starting to see major cracks in the labor market, including a negative “JOLTS” report that sent rates down yesterday. If we see more negative labor market news (like Jeff Snider insists is coming), expect the Fed to cut again.
Why Mortgage Banks Keep Mortgage Rates Higher
Years ago, a friend and longtime borrower called me up furious because I didn’t call him when rates fell to suggest that he refinance.
I felt horrible for him because he could have saved a lot of money, and I felt horrible for me because I missed an easy loan opportunity.
So, I promptly set up automated systems to ensure I never missed another refi opportunity again.
But here’s the thing: I was not alone.
All of the big mortgage banks did the same. Rocket, United Wholesale, Pennymac and Freedom Mortgage now command almost 50% of the loan servicing market – and they pounce on every refi opportunity as soon as rates move down even a little.
Borrowers are far more likely to say yes to refi opportunities now too because the average loan size has grown by $200,000 over the last 5 years – from $320,000 to $520,000.
This makes it easier to offer “no cost” refi’s (because lenders have more yield premium or commission to use to cover closing costs) and it makes refi’s more enticing because the savings are more – even if rates only move a little.
In the old days, loan servicers were separate companies (not tied to mortgage banks), or plodding commercial banks, so they did not pursue refi’s aggressively or at all.
Investors Don’t Like Investments That Pay off Early
And this is why mortgage banks have pushed rates higher. Mortgages are much more likely to pay off nowadays, making them less desirable as investments.
So, the spread between mortgage loan rates and 10 Year Treasuries (that never pay off early) remains much higher than it has been historically.
But for mortgage bank efficiencies when it comes to chasing down refi’s, mortgage rates might be as much as 1/4 percent lower.
By the way, don’t forget about JVM’s “Free-fi” :) We track every borrower’s rate daily, and contact them immediately whenever rates move even a tad lower, and offer a no cost refinance (which of course helps keeps rates higher, but we’d have it no other way).
