You know that mortgage rates soared yesterday, following the collapsing demand for Treasuries and Fannie & Freddie bonds. But just the numbers don’t really do it justice.
The Field Check Group blog has an excellent on-the-ground report of what yesterday felt like at banks around the country. The whole thing is a great read:
Yesterday, the mortgage market was so volatile that banks and mortgage bankers across the nation issued multiple midday price changes for the worse, leading many to ultimately shut down the ability to lock loans around 1pm PST. This is not uncommon over the past five months, but not that common either. Lenders that maintained the ability to lock loans had rates UP as much as 75bps in a single day. Jumbo GSE money — $417k – $729,750 — has been blown out completely with some lender’s at 8%. I have seen it all in the mortgage world — well, I thought I had.
A good friend in the centre of all of the mortgage capital markets turmoil said to me yesterday “feels like they [the Fed] have lost the battle…pretty obvious from the start but kind of scary to live through it … today felt like LTCM with respect to liquidity.”
There are some really interesting dynamics at work now, which the entry discusses in great deal. For one thing, it’s a tremendous blow to industry psychology that quantitative easing has proven to be a total failure. Let’s face it: The Fed doesn’t have the firepower to drive rates lower. It can’t manufacture low rates at this point — not with the kind of borrowing the government needs to do.
What’s more, the spike is a serious blow to people who were close to buying a house. At the new rates, pre-qualified borrowers may no longer be eligible for a mortgage.
Mortgage loan officers around the country are having a very very bad day today explaining to their clients why their rate was not locked and how rates are going to come right back down. They are also taking calls from borrowers with locked loans to confirm that the loan is indeed locked, inquiring as to when it will be approved or fund, and to rush the process in order to fund the loan by end of the lock-in term. This creates a customer service log-jam that chews through lender capacity quickly making the loan process even longer. Loans with second mortgages that need to be subordinated, are in a world of their own. Essentially, everything becomes a rush. Subsequently, loan officers will not feel like getting too aggressive taking new loan applications at least for the next month unless this corrects quickly.