By Jacob Passy
Mortgage rates seesawed lower this week after the Federal Reserve stepped in to provide some assurance to lenders who were at a loss as to how to price home loans amid the disruptions caused by the coronavirus emergency.
The 30-year fixed-rate mortgage dropped to 3.50% during the week ending March 26, Freddie /zigman2/quotes/202741363/delayed FMCC -0.71% reported Thursday . That represented a significant decrease of 15 basis points from last week, when rates surged to the highest level since January.
Meanwhile, the 15-year fixed-rate mortgage fell 14 basis points to 2.92%. Apart from last week, the average rate for 15-year fixed home loans has remained below 3% since January.
The trajectory for the 5-year Treasury-indexed hybrid adjustable-rate mortgage was quite different, however. These rose a staggering 23 basis points to an average of 3.34%, the highest level since mid-January.
Just three weeks ago, the average rate for the 30-year fixed-rate mortgage hit its lowest level in the 50 years Freddie Mac has tracked this data, at 3.29%. The rollercoaster ride that mortgage rates have been on in recent weeks is a reflection of the disruptions the coronavirus emergency has caused financial markets.
Mortgage rates roughly follow the yield on the 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +11.34% , which dropped below 1% again this week after shooting much higher when the Federal Reserve announced it was cutting its benchmark interest rate and engaging in quantitative easing to help the economy weather the coronavirus pandemic.
The Federal Reserve brought clarity to the mortgage market this week, which helped to stabilize rates. The Fed announced that it will engage in unlimited bond-buying in response to the coronavirus outbreak, which included purchases of mortgage-backed securities.
Before the Fed had stepped in, the mortgage market has seen “phenomenal” levels of volatility, said Mike Fratantoni, chief economist at the Mortgage Bankers Association, a trade group that represents lenders.
“It was so disruptive to the point that last week, lenders were really having trouble determining how to price loans when they weren’t getting a clear signal from the capital markets as to what those rates should be,” Fratantoni said. The Fed stepping in this week had a “huge psychological benefit” for lenders, which allowed them to feel comfortable bringing rates lower.
But the Fed’s actions aren’t fool-proof, and real-estate experts warned that volatility could be here to stay for the mortgage market.
“Things may have settled down for now, but we’re likely to see more volatile movements in mortgage rates as the next few weeks unfold, and some segments of the mortgage industry continue to face severe liquidity risks,” said Zillow /zigman2/quotes/205077794/composite ZG -2.93% economist Matthew Speakman.
Another factor in all of this will be the ability of lenders to handle loan volumes. When mortgage rates touched the 50-year low three weeks ago, refinance applications surged to record highs as homeowners scrambled to get cheaper financing. In turn, some lenders had to raise rates artificially to stem the demand and allow them to work through the deluge of applications they received.
That backlog of loan applications may still be a factor for some lenders — especially as their workflows are hindered by the coronavirus as employees are forced to stay home for their health and safety.