Residential Mortgage Rates
March 9th 6:36 pm By Mike Dunn
With the 10 & 30 Year Treasury Bond markets at historic lows, why are mortgage rates not following? Mortgage rates fell to all all time low over the last few weeks leaving most lenders inundated with a huge surplus of loan submissions waiting to be worked on. Are some of those same lenders keeping borrowers from getting even lower interest rates than they already are? With current market conditions bringing a massive influx of loans into the equation, lenders are not forced to offer aggressive pricing models when there is enough business for everyone.
The mortgage business is sailing in uncharted waters and there are no maps or compasses to help them find their way. The lenders are picking their our paths and believed to be controlling the loan volume with modifications to the rates. Looking at current T-Bill conditions has always been the mortgage industries fail safe system to predict where we were headed. But today with interest rates falling below 3.3% for the first time ever, the system is not working.
The yield on the 10-year U.S. Treasury Bond continues to fall to new record lows, and mortgage rates typically track right along with it. As of this afternoon, the yield on the 10-year Treasury was roughly 0.73%, but until last week it had never fallen below 1.1%. Given the typical spread between the 10-year Treasury and residential mortgage rates, borrowers should be able to get an interest rate in the neighborhood of 2.875%, or perhaps even lower than that based on treasury conditions.
But that’s not what's happening. This market has created all new benchmarks to control pricing. If the lenders are this busy without lowering rates further, imagine where they would be if a 2.875% 30 Year fixed was common place. Lenders would be crushed by the demand and turn times to complete a transaction would go from 30 days to 90-120 days quickly.
The term that I'm hearing being used for this phenomenon is “throttling,” with lenders keeping rates above where they could be to ensure they can fulfill all the business in the market.
The capacity issue which we have seem in the past when lending market conditions reach new lows. Simply put, there is only so much volume that any mortgage company can handle and operate at a reasonable level of service. Some can handle more than others, depending on their company size and technological capabilities. Many are already being stretched thin by the surging demand.
Supply and demand at its finest. The lenders have no need to lower their rates. The key will be finding the right price model that allows them to do exactly the amount of volume they can handle. Patients will be huge for brokers and borrowers alike. Knowledge is power and knowing what your options are can make all the difference in getting the right financing option.
The bottom line is that the mortgage business is in a unique bubble right now and trying to keep it from popping will be their goal. Time will tell as to weather these lenders will figure out how to find a new balance or fail miserably.
Stay tuned.