With rates at multi-year lows many homeowners are reviewing their mortgages to see if it would make sense to refinance. With rates so low often times it does. However, many are not locking in their rates. Why? Because they believe mortgage rates will move even lower.
However, I just received an email from the CEO of a hedging company (helps mortgage companies manage their hedging efforts on interest rates). Here is an excerpt:
Low rates — specifically the specter of 4.50% mortgage rates — roiled the mortgage market. A news story broke that the Treasury might take mortgage rates to 4.50% (down from 5.69% currently), and home builders’ stocks surged. Details of the program remain murky, but above-6.00% rate locks have begun to disappear from pipelines. Low rates have touched off a modest refinance boom.
It is a good time to lock in your mortgage rate. Without direct government intervention, mortgage rates to the consumer may not get all that much lower. The spread between mortgage and Treasury yields is likely to drift higher, and even if Treasury yields drop further, the capacity of the mortgage industry is so low that mortgage originators are more likely to widen margins than lower rates. At 2.86%, the spread between mortgage and Treasury yields is well off of its highs. However, there is limited demand for mortgage securities. Regardless of purchases by the Treasury, it appears that the market has found 3.00% over Treasury yields as the balance between supply and demand for mortgage securities. Even an explicit guarantee of Fannie and Freddie debt probably won’t help; Fannie, Freddie, and Ginnie securities all yield the same today, and the Treasury only offers an implicit guarantee of agency debt.
He thinks it’s a good time to lock!