Rates Way Up! Liquidity Crisis; Refi Later for Free; Buy Takeout Food :)
INTEREST RATES SHOT UP AGAIN YESTERDAY
Rates shot up 1/4 percent yesterday over about a 30 minute period – something we have not seen for years.
Rates came back a bit this morning, but then shot up again over the last hour in an extremely volatile market.
Rates are now about 3/4 percent higher than where they were in early March.
WHY DID RATES SHOOT UP?
Rates shot up b/c there is too little liquidity (cash) in the market. Companies and investors everywhere are selling assets to raise cash to shore up operations during this COVID-19-related slowdown.
As a result, there are too few investors looking to buy mortgages or mortgage-backed securities. So, to attract more investors in this market, lenders have to offer higher and higher yields or interest rates.
Rates also remain higher than expected b/c lenders still cannot handle all of the demand.
Many major mortgage banks have pushed their internal interest rates up even higher to stem excess demand.
We did a rate survey yesterday and found some major mortgage banks with rates in the mid to high 4% range (a full 1% higher than our rates).
This won’t last of course (some of those lenders are normally very competitive) but it is a great illustration of what is taking place in the industry right now.
WILL RATES FALL AGAIN?
The consensus among pundits is that rates will fall again at some point, but nobody has any idea of when that will happen.
The Federal Government is taking action right now to improve the liquidity crisis – and this will no doubt include more bond-buying on a massive scale (meaning the Federal government will start buying mortgages to offset liquidity issues).
This is all a bit scary b/c investors seem to also be showing real concern about the Federal Government’s fiscal situation for the first time in a long time – investors realize that the government can’t just spend and borrow forever.
WHAT SHOULD BORROWERS DO? LOCK NOW/REFI LATER
B/c nobody knows when rates will fall again, we recommend that buyers and borrowers alike take what they can get now and then just plan on refinancing later when rates do fall.
Waiting for rates to fall will obviously imperil closing deadlines for purchases and it will cause refi borrowers to miss opportunities altogether.
B/c refinances are almost always “no-cost” borrowers have little to lose by locking now and then refinancing later.
WHAT SHOULD AGENTS DO?
Agents should share this info with their clients to alleviate confusion.
Buyers and borrowers remain confused about the nature of mortgage interest rates (and how they don’t always correlate to the Fed Funds Rate) and many are also unaware of how much COVID-19 is affecting the mortgage industry and fostering delays.
Buyers also need to understand that the market is extremely volatile – so our rate quotes are only valid for about 30 to 45 minutes now.
Hence, buyers need to get back to us ASAP when we do quote rates – or the rate could disappear very easily.
WHAT SHOULD WE ALL DO? ORDER TAKEOUT FOOD!
This is not mortgage related but just a reminder of something we can all do to help others during the COVID-19 crisis – buy takeout food or gift certificates from your local restaurants.
Many restaurants are struggling during this crisis. Purchasing takeout food or gift certificates helps both the owners and the staff.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167