Fed Drops Funds Rate to Zero to 0.25% – how does this impact mortgage rates?

In an unprecedented move, the Fed dropped the Fed Funds rate to 0-0.25% today…it’s Sunday! This is a coordinated effort with several other central banks around the world. This move does NOT mean that mortgage interest rates are 0 – 0.25%. The Fed does NOT directly control mortgage interest rates – however, actions taken by the Fed may impact the direction of mortgage interest rates.

In addition the the drop in rates, the Fed is diving back into quantitative easing along the lines of $700 billion which includes $500 billion in Treasury securities and $200 billion in agency mortgage backed securities. I believe THIS action may trigger mortgage rates to go back down to near the ridiculous lows of last week.

Let’s talk about last week. Mortgage rates hit the lowest levels since Freddie Mac started keeping record and quickly back up to still low levels – but not near where they were.

Often times, I’m contacted by people who hear news like today’s Fed rate cut and believe that the Fed actually controls mortgage rates.

Rates are based on mortgage backed securities and change throughout the day. On days like last Thursday, they change so often, by the time you submit a loan application, have your credit ran and can possibly lock a loan, that rate may be gone. Rates can change so quickly in this market that by the time I submit a rate lock request, it may change.

This chart is from Thursday, March 12, 2020. Check out how many times pricing for mortgage rates changed directions in just one day!

Last week, there was a lot of panic in the markets and mortgage rates did not react as they typically do.

It’s hard to say if tomorrow (Monday, March 16, 2020) morning, if mortgage rates will reach as expected and drop lower.

There is a limit as to how low mortgage rates can go. And IMO last week’s lowest rates were a bit of a fluke. I’m not sure that banks will allow rates to go that low again – they don’t want to be stuck holding mortgages in the high 2s – low 3s for long term (and who would refi that?). It’s simply not profitable enough.

As a correspondent lender, we work with several various banks/investors and I could see, when pricing loans, that some were pulling out and sitting on the sidelines or pricing rates higher than the rest of the market to opt out. Some stayed in but eventually they all moved higher.

Home owners and home buyers who had their applications all ready submitted and who were ready to lock, were the ones who are sitting with the lowest rates in 50 years.

I now have clients who have submitted their applications, we have ran their credit and we have started the mortgage process – if rates are low enough tomorrow, they will have the best opportunity to lock in a super low mortgage rate.

If YOU want to take advantage of the current low mortgage rates, then I highly suggest you start your mortgage application NOW and allow your local, licensed mortgage professional to be ready to lock in your loan. If your home is in Washington state, I am happy to help you! Click here to start your application.

 

 

 

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