Mortgage rates fell to an all-time lowstarting a sudden and unanticipated refinance boom that has lenders large and small scrambling to handle the volume in the last week, Increasing pressure on the lenders, as well as increased risk to mortgage investors from all those refinances, is actually keeping mortgage rates higher than they could be. The average rate on the 30-year fixed loosely tracks the capitulate on the 10-year U.S. Treasury bond. The 10-year plummeted to yet another record low overnight as of Friday it was roughly 0.76%, but mortgage rates, while also at a record low, are slower to fall.
Mortgage rates hit 3.11% falling below 3.3% for the first time ever on Monday, according to Mortgage News Daily.”Demand has ramped up in a way that many lenders have never experienced lenders across the country are now dealing with a floods of mortgage applications,” said Matthew Graham, chief operating officer at Mortgage News Daily, which tracks rates every morning. Some lenders have completely stopped accepting any new applications.”One borrower who called Bank of America on Saturday was told there would be a two-hour wait to speak with a mortgage officer. At Cross Country Mortgage, a small lender in Boca Raton their phones started to ring before 8 am Monday. They have increased working hours and are trying to find more staff to handle the volume of applications, which is now triple the volume they were used to have.
Its absolute chaos, said vice-president of sales at Cross Country, Matt Weaver. “It is a supply and demand situation. The industry right now is certainly flooded with applications for mortgages. We lenders look at a lot of factors when setting mortgage rates and they are most directly tied to MBS yields, which have seen a widening spread relative to the 10-year Treasury yield Goyda said in a statement .Investors in mortgage backed bonds, are at increasing risk because so many people are refinancing. When a loan is refinanced, borrowers pay it off early than the usual, and the lender loses out on several more years of interest rate payment returns. and the risk rises, then borrowers will pay less for those bonds and therefore the yield on MBS rises and mortgage rates rise.
Lenders are now concerned about what is going on that they don’t care about yield they are ignoring MBS and sticking with just Treasury bonds Cecala said. It will take some time and market stability to get mortgage rates back to following the 10-year Treasury, said Graham in a statement and if these Treasury yields become common, lenders can gradually lower mortgage rates without risking rampant activity,” he said. Sooner or later, mortgages would return to a normal distance from Treasuries.
For many mortgage lenders, it seems to be about finding the sweet spot for pulling in as much mortgage business as they can handle and no more. So lenders are walking a tightrope right now, trying to settle on what are the appropriate mortgage rates that will attract exactly as many borrowers as they are able to handle.