How COVID-19 Impacts Homeowners and Home Buyers
Hey there, my name is Josh Lewis, broker-owner, with BuyWise Mortgage, a California Mortgage Broker.
You may have spoken to me directly, you may have spoken to one of our loan officers here.
You may be seeing this somewhere on the internet, or you may be on one of our email lists and have never spoken with me. But what I wanted to do here is bring some clarity.
There’s a lot of uncertainty and confusion with what’s going on, in the financial markets in general, but specifically with mortgage rates.
Most people are seeing lots of headlines about mortgages and wanna know how they can take advantage.
We’re all keenly aware of how we’re being negatively impacted by the virus. You can see right now I’m working from my home office.
We have our entire team working from home. We’re fortunate in our industry. We need computers, internet, and phone, and we can do our job very well.
So, hopefully you’re able to sequester yourself and be safe, as well, for you and your family, but let’s talk specifically about what has happened over the last few weeks.
Late last year, into January, everyone’s watching, hey, there’s this virus in China. They’re having to lock down entire parts of the country. Lots of people getting sick, lots of people dying, their hospitals are overwhelmed.
Well, it started to impact America, in the United States, in terms of thinking, “Hey, our supply chains, “a lot of what we get, a lot of what we buy is from China. “That’s gonna impact our economy.”
So rates started sliding down at that time and continued all the way through about 10 days ago. So, rates improved, improved, improved all the way through March 6th. On Monday of last week, not three days ago, but Monday the 9th, we came in.
The stock market had seen the incidents in Washington state. We had people getting sick, people going to die and took it much more seriously.
The stock market opened down, and actually closed, for a period of time closed trading. Bonds, prices were way up, meaning interest rates were at their absolute best.
On that day, our absolute premier, best, well-qualified borrowers were getting 30-year fixed conventional loans for three and 1/8, 3.125 with zero points.
That lasted less than an hour, we had a reprice mid-day, another reprice later in the day, and by the end of the day interest rates were a 1/2 percent higher and continued to do that through the end of the week.
So, from the beginning of the week on Monday, we were at 3.125 for the best qualified borrowers. By Friday we were at 3.875. That takes us to last Sunday. You probably saw the headline. You saw the news.
The Fed calls an emergency meeting, comes in on Sunday and says, “Hey, we’re cutting the rate to zero.” Most borrowers don’t know what that is. The discount rate that the Fed controls is the rate that banks lend to each other at.
It doesn’t impact your interest rates directly. But, most importantly, the Fed did some really important things.
The reason why we were seeing interest rates get so much worse last week is that banks were having to sell mortgage-backed securities and treasuries, because they have reserve requirements.
As part of the Dodd-Frank legislation from 2010, they have to keep a certain amount of cash on hand. And last week, the most liquid things they had to sell for cash were mortgages and treasuries. So that’s what was happening.
Despite the fact that the economy’s slowing, things are getting worse, rates should be going lower, they’re actually going higher. The Fed sees this, knows this is problematic, wants to calm the markets. So it did several things.
They set aside those reserve requirements so that banks were not gonna have to be selling mortgage bonds and treasuries and leading to higher interest rates. The Fed themselves, due to the quantitative easing that was done in the last financial crisis, has a large portfolio of both treasuries and mortgage-backed securities.
They were selling those as recently as last week. They announced they were gonna stop selling and, in fact, become buyers. So if you remember supply and demand from economics, well, they’re having way less supply in the market and way more demand, because the Fed themselves are coming in as buyers.
So predictably, we saw on Monday, rates improved a 1/2 percent, at least 3/8 of a percent from Friday.
Now, what then happened yesterday, and what is impacting where we’re at today in interest rates, is the government announced they’re closing in on a $1 trillion spending package to rescue the economy while things are uncertain here with the virus.
The problem is, to finance that, they don’t have $1 trillion sitting in the bank. They have to go and sell $1 trillion of treasuries to finance that.
So, bond markets, both on the mortgage side and treasuries, are balking at that, and rates are spiking, ’cause they’re saying, we’re gonna have all of this supply, and we still only have a finite demand for these investments.
So, again, we’re up on rate sheets, or in the bond market, we’re up about 1/2 percent. So at our best, we were at three and 1/8, we went up to 3.875, back down to three and 1/2, and as of today, the underlying fundamentals would imply that we should be right around 3.875.
A zero point loan, because of all the uncertainty, because of all the chaos, and everything we don’t know, for the best qualified borrower, if you wanted the zero point loan, it’s almost 4.75 today. That’s hard to believe and hard to understand.
We’re talking to people who are saying, “Hey, my loan officer told me last week they can do this, “and now they’re giving me this crazy number.” No one is trying to take advantage of you. We just have some issues here that are leading to higher interest rates, and those issues will work themselves out.
It might take a couple weeks, it might take a couple of months and getting some clarity on what’s going on here. So, I can bore you with the details of it, but lenders are stressed.
They’re at full capacity. Loans are taking 45 to 60 days, where we were closing ’em in 21 before all of the rush of refinances came in. So what can you do right now?
If you don’t have a locked interest rate, you wanna take advantage. Right now, the rate sheets are not showing that opportunity.
We’re strongly advising anyone who thinks they can benefit from lower interest rates, that we do think will be coming, that we will get another opportunity at, is to complete your loan application. Complete the entire loan application.
Supply your supporting documentation. Let’s go through it as if rates were still at three and 1/4. Let’s structure your loan, have it waiting and ready, so that if, like, on Monday, we get one day where the rates are there, you’re in a position to lock.
If you have questions, if you’re not sure if you can benefit, I would love to have that conversation with you. Myself and my team are available. We’ll have all of our contact information in this email. If you’re seeing it online, if you’re seeing this video online, feel free to just comment, reach out to me directly, email.
We will do our best to get back with ya. It’s a crazy time of uncertainty. With all of the negative things going on, the best thing that can happen is some households can improve their finances, and we wanna be a part of that for ya.
If you’re not in California, we only help borrowers in California. We have a huge network of excellent loan professionals in the other 49 states. We’d love to get you connected with someone that can help.
So, again, be safe. Hopefully, you’re working at home. Hopefully, you’re following all the social isolation guidelines. And the quicker we stick together, the longer we do it, the better off it’s gonna be for everyone.
And hopefully, in six or eight weeks, we can all look back and this is just a blip, and we’re all moved on to better things. So, again, hope this was helpful and would love to talk to ya if you have some questions.