Long post, but informative…
Yes, the fed has dropped interest rates to zero. However, the bigger news is that they also announced that they are buying back Mortgage-Backed Securities.
Let me explain… the fed rate is not directly tied to mortgage rates. The fed rate affects VARIABLE interest rate loans and savings accounts. Mortgage rates are more directly tied to what is called “the secondary market.”
Basically, when you actually purchase or refinance a home, they put you on their “warehouse line of credit.” The lenders then either take the mortgages off of their own line of credit and service them themselves, or they sell them to someone else to service.
Either way, there is a lag of about 30 days to get them off of the warehouse line. In addition, there is only so much staff at each lender. Once they are overwhelmed by the number of applications, they literally cannot take any more.
When the fed cut the interest rate last week, the mortgage rates were ALREADY very, very low.
Since most Americans saw that the rate was cut, they equated it with mortgage rates and they put in an application to refinance.
This overwhelmed most lenders, but also they have to “reserve” room on their warehouse lines. Since investors got spooked by the stock market, they weren’t buying these mortgage backed securities in the secondary market.
Therefore, lenders were running out of room on their warehouse lines. So, in turn last week, rates went up and up to dissuade people from picking that particular lender. As most lenders became “full” with capacity and warehouse line, their rates went higher….
This is why the big news is the fed purchasing these mortgage backed securities. That takes away one BIG portion of why the rates went up. Now it comes to employee capacity.
I think everyone should be cautiously optimistic about rates next week…
If you would like to speak to me, let me know… I can put you on a rate watch and we can be 100% prepared to lock you in when/if they do dip again.
Message me or AZ Home Loans (NMLS 1563078) for more information. 480-712-1604