Several weeks ago, mortgage rates hit their lowest levels in history, creating an environment for more people than ever to benefit from refinancing. Since news networks are blasting viewers with headlines like “Coronavirus leads to lower rates,” people who otherwise wouldn’t have noticed rate changes are paying close attention and looking to get in on the action. 

We’re now experiencing the biggest run on mortgage refinancing ever. Due to this unprecedented, ballooning volume, banks were forced to sort of slow things down; they slightly raised rates, not to demotivate buyers, but rather to offset two things: 

1. Maxed-out operational capacity
2. The bond market blow-up. 

Expanding on No. 2 a bit, the market realized how much volume was about to flood into it down the line, and the valuation metrics have been recalculated, but not in a good way. The inability of the market to absorb as much paper as has been coming out created an environment where lenders find it difficult to determine what rates they should set for certain loan programs. As a result, they’ve added in a buffer to absorb any potential losses when it comes to securitizing. 

“Once the government earmarks funds for the purchase of mortgage-backed securities, we’ll see rates improve.”

Many years ago, there was a disconnect between what Treasury yields were pricing and what mortgage-backed securities were pricing—those two do compete for the same investment dollar. The government stepped in and initiated a quantitative easing program that earmarked funds for the purchase of mortgage-backed securities, affording the banks a place to deliver loans so that they could keep running the loans and help the consumers. 

I expect that this will happen again (depending on when you’re viewing this post, it may have already happened). Once the government earmarks funds for the purchase of mortgage-backed securities, I believe that the liquidity for lenders to have a place to deliver loans will be there, and we’ll see mortgage rates improve. 

If you have not yet refinanced, the best advice I can give you is to reach out to your lender and prepare yourself for when rates do come down. Understand the pros, cons, and costs of a refinance ahead of time. Don’t miss out on a rare opportunity. If you have questions or would like me to elaborate on something I mentioned today, feel free to reach out to me. I’m always here to answer your questions.