FED CUTS FED FUNDS RATE TO ZERO; $700 BILLION IN QUANTITATIVE EASING
In a shocking and surprise weekend move, the Fed cut the Fed Funds Rate to 0% yesterday – which may or may not have moved mortgage rates for reasons I explain often (cuts in short-term interbank borrowing rates don’t often translate to cuts in long-term mortgage rates).
But, the Fed also committed to $500 billion of treasury bond purchases and $200 billion of mortgage-backed security purchases.
This renewed “Quantitative Easing” did push rates down slightly but that didn’t last, as the market is all over the place today and extremely volatile.
MORTGAGE RATES BARELY MOVE; CAPACITY ISSUES
Despite the massive Fed intervention, mortgage rates barely moved. The reason is capacity.
There are $11 trillion in outstanding mortgages – give or take. The industry is capable of funding about $2 to $3 trillion per year – at most.
When borrowers with $5 trillion worth of mortgages want to refinance over the course of a few months, the industry simply can’t handle the volume.
And – as a result, rates remain on the higher side and are still over 1/2 a percent higher than where they were ten days ago.
PATIENCE AND TIMING THE MARKET – WHICH CAN’T BE DONE
For borrowers refinancing the word of the day is patience.
Every lender is working overtime and doing the best they can to process loans – but they can only do so much in light of capacity issues.
Borrowers intent on “timing the bottom of the market” will likely get burned.
I will repeat what I saw in several market commentaries today – take what you can get without getting greedy. 😊
Borrowers shopping for the rock-bottom lowest rate will end up very frustrated.
The head of the Cleveland Clinic said yesterday that he thinks the coronavirus “will peak in April,” and after it does, rates could likely bump up a bit.
But long-term rates will very likely remain low and continue to edge down as we appear to be in a permanent or long-term low-rate environment (for a variety of reasons).
Hence, borrowers, who think they may not be getting the rock-bottom lowest rate now, will likely be able to refi again in the future.
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