Rate Update March 25, 2009
Fixed Mortgage Rates are even with yesterday.
Mortgage Backed Bonds have been trading lower on the day in early morning trading but have since mad a recovery and are about even. As long as prices can hold (they tested levels of support yesterday before coming back as well), we can feel comfortable floating. Bonds prices remain about 60 basis points above the trading range that we were in for the last month but as you can see, mortgage rates aren’t too much better than they were back then.
Why is this? I think there is a couple reasons.
- Lenders are hesitant to lower rates in fear that the recent events will cause certain inflation in the future, which means the money they will be getting paid back in the future will be worth less than the money they are lending out today. I realize that this is the case with every mortgage with a life span of more than about 5 years, but recent activity simply can have the effect of feeding the inflation fire if you will.
- As I have mentioned before, many lenders spent much of 2008 cutting back a large amount of their workforce and are currently working at capacity now with all the refinance applications. To combat this, some lenders are actually keeping their rates artificially higher so that new applications don’t come in as fast and they can get through the ones they have.
Current Outlook: Cautiously floating