About three weeks ago, mortgage rates hit an all-time low.
And then, in what feels like a blink of an eye, they spiked up drastically.
So, did the number of coronavirus cases and deaths.
Make no mistake, the COVID-19 pandemic is having a critical impact on the mortgage industry. But so was the sheer demand for those lower interest rates.
Mortgage service providers were flooded with business during the record-low week and couldn’t keep up. When that happens, rates go up. Specifically, a lot of people saw the incentive to refinance, which creates a servicing runoff, and then can create some losses if that loan needs to be paid off ahead of the breakeven period.
So, where does the coronavirus come into play? The stay-indoor orders across the country have essentially shutdown the U.S. economy. That means job loss, which means even more risk for mortgage servicers because they have the responsibility to make the payments to the investors — whether or not they’ve received the money from the borrower.
On top of that, the federal government announced a 90-day grace period for mortgage payments, which is great for impacted homeowners who may not be able to cover their monthly payment, but presents a huge obstacle for those servicers who still need to make the mortgage payment to the investors.
And at the same time, the government is purchasing a large amount of mortgage backed securities in an effort to keep rates low, which could actually have an adverse effect.
“Some lenders just aren’t willing to take on the risk because the rates are being artificially inflated and supported by the government,” said Andy Inhelder, a loan consultant with loanDepot.
While there’s plenty of uncertainty in the mortgage industry, the good news is that buyers are still getting approved for mortgages. If the economy continues to decline, those lending requirements could get tighter, though.
Money for jumbo loans and other non-government-backed loans right now is also drying up.
“All of that private, portfolio-type money in those markets is starting to go,” said Eric Kulbe with Synergy One Lending.
In terms of rates? They are all over the place right now due to the challenges presented by the coronavirus. If you’re getting ready to close, talk with your lender on a daily basis and try and get locked into the best rate possible.