You’ve heard the headlines about unbelievable, record-low rates. Where are they and why haven’t they materialized across the board for consumers?
The spread of the global coronavirus pandemic, driving decreased consumption and the downward trend of the stock market has some economists warning of an upcoming recession. Yet, for many pundits in the business media, the lesson of 2008 was: “Every downturn is an opportunity.”
Following the Federal Reserve’s recent massive rate cuts, the vision of record-low interest rates was enough to thrill even the most conservative homeowners into exploring refinancing options. Yet, increasingly, the promised low-interest refinance rates have failed to materialize, leaving some homeowners wondering whether they will be left out of this unprecedented money-saving opportunity.
What’s going on with mortgage rates and how can you ensure you’ll be able to take advantage of this chance to refinance your home at rock-bottom prices?
The Volatility Problem
In the consumer goods marketplace, high demand is generally considered a good thing. However, the uncertainty caused by COVID-19 in the financial markets, and the resulting volatility in demand for mortgages and other financial assets, are not seen in this same positive light.
Investors like the security of predictability and clarity. Rate volatility makes it exceptionally challenging for investors to make good decisions about the value of mortgage bonds. Add to that growing fears of the economic impact that the COVID-19 pandemic will have on travel, goods, and services, coupled with an election year, and you have an overwhelming amount of uncertainty for financial institutions and investors to process.
The Demand Problem
On top of volatility, there’s the sheer volume of projected transactions and their impact on the capacity of mortgage providers. There is currently approximately $10 trillion of mortgage backed securities debt in the market and some industry experts estimate that more than $8 trillion is refinance-able.
However, normal capacity for mortgage origination is around $2-3 trillion, maxing out at $5 trillion (given enough time to ramp up staffing and logistics). Because they can’t manage this exponential spike in business, lenders are delaying a drop in interest rates to slow down the market’s demand for mortgages.
Lenders are also looking at significant write downs on loan servicing portfolios due to the increased risk of their loan portfolios being refinanced. While some of those losses may be offset by new originations on loans, this adds to the volatility already roiling the mortgage-backed securities industry.
In order to offset some of these projected losses, lenders can add to their bottom line by temporarily charging consumers higher rates. Delaying rate drops by days or weeks can significantly increase their profitability and may be another reason that banks are slow to match lower interest rates.
What can you do to take advantage of the expected lower rates?
In the face of lender reluctance to follow the financial markets downward by responding with mortgage rate adjustments, how can consumers make sure they don’t miss out on this opportunity?
Be patient and persistent. Rates will inevitably fall, though it may take some time for them to reach the lows that have been breathlessly predicted by the financial media. By connecting with the right lender and spending this time putting together your financial information, you’ll be ready to lock and execute quickly when there is an opportunity and won’t be scrambling.
Submit your application and start the process of getting your loan approved. Provide the information your lender needs now, so that once rates do fall, you can lock your rate immediately and your loan officer can move quickly to schedule your closing. Make your refinance plan a priority so that you’re ready to strike when the right time hits. If you don’t get a head start now, you may miss out as lenders will likely once again be overwhelmed with new mortgage applications.
Think beyond the big banks for your mortgage. Many larger institutional lenders are moving even more slowly than the market at large, both to increase their profits and to decrease demand. Some lenders have stopped taking new applications for refinancing altogether. While big banks are taking in excess of 120 days to close, many Simplist lenders can still close in less than 30 days!
Once you are approved, take advantage of shorter lock periods and better execution. Since rates are expected to decrease, you don’t have to be quite as concerned about the expiration of your rate lock. In fact, you might find that you’ll get a better deal by waiting for the supply demand balance to stabilize.
While other borrowers are weathering frustrations with their current lender, Simplist is providing more than 50,000 options designed to help consumers find the perfect mortgage or refi product for their particular financial situation. Talk to a Simplist loan expert today or simply provide some basic information online to get started.