On Sunday, March 16, Fed Chair Jerome Powell announced a second “emergency” rate cut, three days ahead of the scheduled meeting of the Fed Open Market Committee. Powell also announced a new round of Quantitative Easing—the fifth move of its kind in recent history. This means that the Federal Reserve will enter the market and purchase $500 billion in Treasuries and $200 billion in mortgage-backed securities (MBS) over the next few months. The latter normally affect mortgage rates directly, but with the current turmoil in the markets, borrowers are unlikely to see significantly lower rates immediately.
The reason for this, as I mentioned in a recent article, is that lenders are currently dealing with more new loans than they are equipped to handle. They are “throttling” their pipelines, keeping their rates comparatively high to slow the flow of new business. We are likely to see improvements only once they have gotten control of their pipelines.
The reaction to the Fed’s announcement was extreme in both equities (stocks) and bonds—including MBS. Stocks plummeted on the news, triggering automatic “circuit breakers” to halt trading as all major indexes plummeted. The Dow fell at one point to 20,387—nearly 2,800 points below Friday’s close.
MBS, on the other hand, rallied strongly, continuing the recent theme of high volatility. At this writing, the Fannie Mae 3.0 coupon is up 123 basis points. Higher MBS prices (green bars) normally mean lower mortgage rates.
There is a very good possibility that rates will come close to the low levels we saw two weeks ago but this is by no means a sure thing. If your rate is higher than 4% today, you’ll benefit from refinancing.
I have two pieces of advice to offer. First, don’t wait until rates drop further to start the process. When loan officers get overwhelmed with new applications, they simply do not have the time to go through their database of “possible” clients to convince them that now is the time to refinance. A far better strategy is to start an application now, with a clear idea of what your goal rate is. Doing this means that you will be a client, rather than someone who once expressed a casual interest. When you are in the loan officer’s pipeline, you can be assured that they will contact you when the rates drop.
Second, don’t get greedy. If you can lock a rate that makes economic sense, do it. Holding out for another 1/8% could mean losing your opportunity it rates move back up, as they did without warning last week. To put this into perspective, the difference of 1/8% on a $400,000 loan is a payment difference of $28 in your monthly payment.
If you’d like to start an application today, you can do so on our secure client site: