The mortgage business is blazing a new trail right now. Rates have fallen to a record low. They have almost hit 3%, but they aren’t as low as they could be. Experts say they should have dipped below 3% by now but that busy lenders are holding back on lower rates to help control demand. It’s anyone’s best guess as to what happens next, but it’s quite possible that even lower rates are on the way.
As you know, the 30-year fixed-rate mortgage tracks the 10-year Treasury, and because of the coronavirus chaos, those Treasury rates have plummeted. They dropped to .76% as of Friday, March 6th and that’s led to lower mortgage rates
According to HousingWire, the typical spread between the 10-year Treasury and mortgage rates should put the 30-year loan at 2.75% or lower. (1) But that’s not what lenders are offering.
Phones Ringing off the Hook
As reported by CNBC, Mortgage News Daily pegged the 30-year at 3.11% on Monday, March 9th. That has already created long wait times for borrowers to even “speak” to a loan officer. Vice-president of Cross Country Mortgage in Boca Raton, Matt Weaver, says phones were ringing off the hook at 8 a.m. He calls it “absolute pandemonium” or something like Home Depot during a hurricane. (2)
Lenders are inundated with loan and refinance applications. If rates go lower, they are worried there will be a stampede through the doors, or something like that anyway. HousingWire says, lenders feel they are overwhelmed as it is, and would be crushed if they dropped below that 3% threshold.
Lenders Extending Close Window
One of the words they used for keeping mortgages higher than you might expect is “throttling.” So they are throttling this downward trajectory and are still too busy. Some are extending their lock windows to as much as 180 days because they need the time to write the loan. That’s a six-month period of time!
That may be a bit of an exaggeration, but data from Ellie Mae shows the average time to close was 48 days in January. And that’s before we saw a deep plunge in the 10-year Treasury.
Loan Depot CEO, Anthony Hsieh, offered a good analogy for the current situation. He says, “The analogy is this: When you are using shared Wi-Fi at an airport, sometimes speed can be slowed because everyone around you is trying to use the same services. This market is unpredictable, but upcoming capacity demand for refinance may create a similar, slowed experience.”
Rates Are Changing Rapidly
Hsieh told HousingWire, the core issue is how much mortgage business the mortgage business can handle. One of the more difficult tasks is keeping up with the mortgage rates because they are changing so rapidly. That’s one possible reason that rates are staying right around 3%. If everyone does that then individual lenders know they haven’t stepped into the deep end of a swimming pool.
It’s basically a balancing act for them. They want to attract customers without overwhelming their capacity and without sacrificing their bottom line.
And the bottom line counts for a good part of this equation. Inside Mortgage Finance CEO Guy Cecala says, “It’s very complicated as to why mortgage rates aren’t a lot lower. One reason is lenders are dragging their feet, more for profit reasons than for concerns about handling the volume.”
That said, if you go to a smaller lender, you’ll have less competition from other loan applicants and a better chance of getting what you’re after — a spanking good deal on a home loan. The bigger lenders are also ramping up their capacity to deal with the demand as this situation progresses, so you may want to check with them as well.
Is it a good time to refinance “now.” I guess that depends on how long you are willing to wait to even speak to a loan officer. But waiting could have its rewards if you manage to get an outrageously low interest rate that will stay at that low rate for 30 years.
(2) CNBC Article