The stock market had violent swings up and down, but the trend was all negative. The bond market surged with investors fleeing stocks for safer places to put their money. I have been flooded with calls and emails asking some very specific and important questions:

What are the current mortgage rates?

Did rates drop more when the Fed cuts rates by ½%?

If the Fed cuts rates again, will that result in even lower mortgage rates?

There are 2 very important economic concepts in play right now. The first is how Fed cuts affect mortgage interest rates. The second is how a flood of mortgage applications influence the rates lenders offer. I have written extensively on both of these topics. Today we’ll rehash the basics, with links to past articles.

TOPIC #1: The Fed Rate Cuts and Mortgage Interest Rates:
The only rates the Federal Reserve has control over are the rates they charge member banks to borrow from them on a short-term basis – basically the rate to borrow money on overnight, not long term. While this adds more liquidity to the economy, a change in the Fed rate does not correspond with mortgage rates. They are two very disconnected aspects of the economy. The simplest way to explain it is this way: Banks don’t borrow money from the Fed to lend out to you for your mortgage.

Fed rate hikes or cuts do influence the US Bond and Mortgage markets in a very different way. In many instances, a Fed rate cut can result in higher mortgage rates. Huh? Click the link below to read the article I wrote last July when the Fed first started to cut rates.

https://www.hawaiimortgage.net/rates-a-fed-rate-cut-7272019/

TOPIC #2: The Flood of Mortgage Applications Affecting Rates:
Capacity issues. Every lender faced them this week. On Monday, Quicken Loans – the largest lender in the county had their single biggest day of loan origination in their history. Another lender, Freedom Mortgage, received over $1,000,000,000 (that’s one billion) in loan applications in the first 3 days of this past week.

The mortgage industry is no different than any other. You have a workforce in place that can produce only so much. If you are fortunate enough to receive more business than you can adequately service, you have to do something to slow the flow. The only way a lender can do that is to artificially raise the rates they offer to “gently” suggest applicants go somewhere else. It’s not unusual – it’s the rule of supply and demand. And it doesn’t happen only in times where there’s a huge drop in rates, it happens every day in the marketplace. That is why I have remained a Mortgage Broker with access to many of the top lenders in the country. If one lender is artificially keeping rates high, there’s always another fighting to earn business.

Capacity issues are met by what we call “Throttling”. Despite the stock market’s continued slide this week and the strength shown in both the US 10-Year Bond and Mortgage Backed Securities, rates at many of the top lenders in the country ended higher this week than how they started. Huh? Click below to read the article I wrote last year on the Throttling:

https://www.hawaiimortgage.net/throttling-explained/

No one knows where rates will be tomorrow. My best advice to you is to determine if a refinance at today’s rates make sense. If they do, proceed forward with your application. If rates drop further during the process, it’s a bonus to you. If you wait, thinking things will get better, you may miss the boat completely.

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