Mortgage Rates in Sacramento and the Nation
In the greater Sacramento area there are many pockets of neighborhoods that have an unusually high percentage of homes in foreclosure. Then there is the stress of so many Mortgage Lenders folding over the last few years. Investors have little confidence in the financial markets. In Sacramento and its surrounding areas we’ve seen many mortgage lenders lose their warehouse lines and haven’t been able to honor their commitments to lend, even on locked loans. Overnight one lender ‘s FHA rates jumped, whether locked or not, from an average of around 5.0% at par to 6.875% with over a 1 point cost! That is a huge increase!!!
Supply and Demand also plays a huge role in the volatility in mortgage rates of the Sacramento based lenders. National lenders rate sheets pretty much follow suit although they seem to be not as heavily impacted as smaller Sacramento lenders. There are many economic factors that act as catalysts but the ultimate reason for these wild swings in rates is supply and demand of Mortgage Backed Securities (MBS). Simply put, these are long term bonds that are tied to Mortgage rates. There is a highly liquid market for MBS just like the stock market. When demand for MBS increase, mortgage rates should drop and vice versa. Money travels in and out of the stock and the MBS markets throughout the day causing rates to go up and down accordingly and often swinging both ways multiple times throughout the day.
As mentioned above, an increase in demand of MBS should cause all rates to go down but that’s not always the case. Lenders aren’t passing on the savings to brokers or consumers. There are a couple of reasons for this. Lenders aren’t really lowering the rates accordingly to the changes in the MBS. Instead they are keeping a larger percentage of the spread between their investor’s rate to them and the rate that they offer to brokers and to the public. For example, one of my Sacramento based lenders posts their FHA rates in the morning and during the day the demand for MBS increases their price by 1 point. Normally that would drop rates by let’s say .5%. Instead the lender only drops the rate by .125 to .25%. The lender is not dropping the rate by as much because it increases their bottom line.
Another reason that mortgage lenders aren’t passing on this saving is because those that have survived have done so by decreasing their staff and overhead. Now that the treasury has been buying up MBS increasing the liquidity and the demand, mortgage rates have become attractive again and home prices are low because of all the foreclosures. Consequently the lenders have more volume than they can handle. They cannot keep up and don’t want to hire more staff in case the market slows down so they raise their rates to drive away some of the business
When you add up all of the factors mentioned here you can see why the rates bounce around so much. The combination of an abundance of area foreclosures, the supply and demand of MBS, and lenders not passing on their savings to brokers and consumers are collectively causing the volatility of mortgage rates in Sacramento and the rest of the nation alike.
Tags: Mortgage Rates, Real Estate, Sacramento