Previously, at Loanguide.com…
A couple of weeks ago I speculated that mortgage rates could drop anytime. Have they? Yes, if you measure rates by 10-year Treasury bond yields, or even the Fannie Mae 60-day yield (the yield investors demand when they purchase mortgage-backed securities from Fannie Mae to be back by loans delivered 60 days from now.)
However, if you look at the rates actually locked by consumers, you’ll notice that they’ve hardly budged. (See the green line in the chart above.)
What’s happening? In a word, volatility. More accurately, high volatility in the market increases the risk to an investor of guessing wrong when dealing with longer time frames. The interest rate your lender quotes today is for a loan that will close in 30 to 45 days (on average) and be sold off the investors in 60 to 90 days. In highly volatile market conditions, lenders are cautious about offering much lower rates because by the time they process, fund, package and sell your loan the market could look very different.
(They have ways of managing that risk, but it is still present.)
However, the Fannie Mae yield (Blue line in the chart) is representative of the cost of the money lenders are lending, and that is going down. Interest rates at the retail level (all that matters to you) have remained steady, while the margins (the spread between the cost of funds and the interest rates locked) have risen.
Here is where the opportunity lies this week. Higher margins always produce lower interest rates provided they last long enough, even if the volatility doesn’t end. This is because there are still an awful lot of mortgage lenders out there, and when one breaks to the downside others follow. Competition drives rates down.
Will this week see more volatility? In the last week the S&P 500 lost over 6% of its value, and is now negative for the calendar year. The Dow performed nearly as badly, and most analysts are suggesting there will be more selling tomorrow (Monday 8/24.) Whether the stock market settles down or not we should see mortgage rates at the retail level come down a little this week. If stocks do settle down we should see mortgage rates come down a lot.
Remember, I can’t lock your loan until you have a complete application, which in theory can happen in a couple of hours, and in practice usually takes a couple of days to gather everything. (These days – things have changed…)
If you’ve been waiting for lower rates, please call now. And please pass this blog on to anyone you know who is considering refinancing their loan. Timing is everything!
Casey Fleming, Author The Loan Guide: How to Get the Best Possible Mortgage (On Amazon)Mortgage Advisor, C2 FINANCIAL CORPORATION408-348-3442 mobileMy Blog: www.loanguide.comFacebook: C2 Financial Corp.Facebook: The Loan Guide BookFollow me on Twitter for interest rate updates: @TheLoanGuideNMLS 344375 / DRE 00889527