New Record Low Mortgage Interest Rates for the week Ending 9/11/2020 As Risks Retreat A Bit

Mortgage interest rates for buying a home on the Palos Verdes Peninsula reached new  record lows this week for conforming loans but remain higher to jumbo loans . The following are excerpts from the newsletter on interest rates published by HSH Associates:

” In a more normal world, news that the economy was beginning to perform better and inflation firming after a lull would be key components in lifting bond yields and mortgage rates. However, in the context of a Federal Reserve exhibiting a new tolerance for inflation and with monetary policy on hold for potentially years at this point, upward pressure for yields and rates has been hard to come by, let alone sustain. Add to this a stock market that got spooked by its own shadow and had a bit of a selloff over a number of days, shifting money to bonds for at least a moment, and you’ve got the ingredients for a dip in mortgage rates, which happened this week, and a decline sizable enough to produce a new record low (by two basis points).

Market-based risks are falling, too. With fairly rigid underwriting standards in place tightening somewhat more in the early days of the pandemic outbreak, loans being made are mostly to high quality borrowers with stable incomes, good credit and more. Back in March and April, concerns about potential home price devaluation emerged as the economic shutdown expanded back in March and April; those have been erased by low mortgage rates and COVID-19 effects, which sparked strong demand among potential homebuyers. Home sales have rebounded strongly, lifting home prices nearly everywhere, and this beneficial effect helps lessen the risk of loss in a portfolio of mortgages. Refinancing is running very strong, producing outsized profits for lenders, and a solid bottom line can cover more or new risks should they begin to form.

In mortgages, risks are often reflects in markups or margins over a comparable, relatively risk-free investment. For long-term mortgage rates, a good proxy for this is the yield on the 10-year Treasury, as it is free of credit risk. The gap between this yield and the rate for a long-term mortgage (or even a Mortgage-Backed Security) is known as “spread”. If risks are rising, you can bet that spreads will be, too, and vice versa. In the current climate, it would be incorrect to say that risks in the economy and the mortgage market have disappeared, or even diminished greatly, but it is correct to say that they have lessened, and with that lessening comes a reduction in spread. This is largely why mortgage rates have settled to new lows on a number of occasions recently, and, provided this positive trend continues, why they are likely to again as we move deeper into the fall.

The selloff in stocks that helped push mortgage rates down this week seems to have partially reversed and yields rebounded for a bit this week before fading again. We’ll call it a toss-up, and expect no change in the average offered rate for a conforming 30-year FRM as reported by Freddie Mac next Thursday morning.”

The following are interest quotes from Allen Bond of Wells Fargo:

Conforming

Jumbo

Rates shown are for purchase loans only. This information is accurate as of 9/8/2020 9:24:40 PM (CT) and is subject to change without notice.

For information on the many other loan options we have available, including refinance loans, please contact me.