Coronavirus and Rates

As a mortgage professional for almost two decades, I have been through many wild rides, but nothing compares to what we are experiencing right now with this coronavirus; or what I am calling our alternative universe. Just over a week ago, the fear of COVID-19 sent stocks tumbling, and mortgage rates lower – according to Mortgage News Daily, the average rate for the popular 30-year fixed mortgage fell to 3.23%, an 8-year low.

Rates had been dropping for weeks as “breaking news” seemed to ping our phones by the minute, and fear began to manifest in real-time, as we watched the stock market cradle. In times of economic uncertainty, mortgage rates are typically the beneficiary of bad news, and rates go down as dollars move from the risky stock market and into the “usually” safe haven of mortgage-backed securities (aka mortgage debt) – and rates go lower.

As news of the virus drove interest rates down, homeowners rushed to apply for mortgages not seen in over a decade. According to the Mortgage Bankers Association, during the first week of March, refinancing applications reached their highest levels in over 11 years and jumped 79% week over week. We all went from being plain old busy to our hair catching on fire. That’s when the damn broke, almost at once, as Banks quickly began to increase rates to stem the demand. More factors contributed to mortgage rates spiking, and I will cover those in future blogs — no need to get too far in the weeds here.

In what seemed like a matter of hours, those attractive low-interest rates vanished in a poof of air, and rates shot up – and fast! According to Mortgage News Daily, that average rate is now over 4%, and we don’t know how high it may go.

The Fed Didn’t Drop Rates?

Most had not heard the news that rates had jumped when the Fed made a dramatic announcement that they were going to lower the Fed funds rate to almost zero. Within minutes my cell phone exploded with calls and text messages from clients “Dan, did you hear the news? The Fed is lowering rates to zero, and I want it! Unfortunately, I had to tell them it doesn’t work that way.

The Fed Funds Rate is the overnight rate at which banks borrow money from each other; it is not, however, the mortgage rate. Mortgage rates are influenced by the U.S. and global economies and the demand (or lack thereof) of mortgage-backed securities (MBS) that are bought and sold on Wall Street. In short, MBS represents the prices investors are willing to pay for these low risk, low rate, fixed investments. More demand drives interest rates lower, and less demand drives them higher. 

So to be clear, the Fed can’t just announce they are lowering mortgage rates by dropping the federal funds rate. But, by making these incremental moves, they can help influence mortgage rates to drop – or in this case not to go too much higher!

What is Quantitative Easing, and why do we want it?

Now that we all know Fed rate cuts don’t always lead to lower rates, there are a few other tricks the Fed has up her sleeve to help us. One method that paid huge dividends during the crash of 2008 is Quantitative Easing (QE), which is “the introduction of new money into the money supply by a central bank. 

In laymen’s terms, if the guys on Wall Street and investors won’t purchase Mortgage bonds or treasuries, the government can step in and fill that void. Thus, keeping the demand for MBS going, which in turn keeps mortgage rates low. And if rates stay low, it will promote consumer spending (and borrowing) and keep our economy humming. The Fed’s goal to push rates down using QE may work again, as it did when they purchased billions in bonds and securities over many years following The Great Recession.

What is happening today reminds me of just how fragile and reversible progress can be. And unfortunately, as a society, we sometimes have this terrible habit of repeating mistakes we made years ago. This is why it is so essential to work with people you trust and who have the experience to guide you through the steps of homeownership and finance. I am hopeful this move by the Fed will pay dividends, just as it did before, and we can all continue to realize the dream of homeownership. Be safe, everyone. 

ALERT! 3 Mortgage Scams to Watch Out For (And How to Avoid Them)

Scam Alert! Three Mortgage Modification Scams to Watch out for (And How to Avoid Them)As if homeowners in Sacramento who are facing foreclosure don’t have enough to worry about, a multitude of loan modification scam artists have invaded the internet, public files and even foreclosure notices in newspapers in hopes of targeting their next victim. By identifying the top three modification scams and learning how to avoid them, at-risk homeowners can protect themselves (and their homes). Continue reading “ALERT! 3 Mortgage Scams to Watch Out For (And How to Avoid Them)”

A 2-Minute Guide To Flood Insurance: Do You Really Need it?

The 5-Minute Guide to Flood Insurance: What It Is, How It Works, and Whether You Need ItYou’ve got house insurance, and assume your property is covered for any type of detrimental occurrence that can possibly take place.

However, not all homeowners in Sacramento are aware that home insurance policies don’t necessarily cover damage related to a flood, as the risks are too great. As a result, homeowners must purchase flood insurance through a private company.

Floods are one of the most common hazards in the US, costing billions of dollars in damage to properties every year. And more importantly, if you are in the process of shopping for a new home in Sacramento or anywhere in California for that matter, budgeting that monthly payment, its good to know if flood insurance will be required. Continue reading “A 2-Minute Guide To Flood Insurance: Do You Really Need it?”

If You Miss One Mortgage Payment Will it Hurt Your Credit Rating? Yes! Here’s What to Do if You Miss One.

Can One Missed Mortgage Payment Affect Your Credit Rating? Yes! Here's What to Do if You Miss OneMost people don’t know whether or not a single missed mortgage payment can have serious consequences for their credit score. As a Sacramento Lender, it is amazing how much time we talk about credit. Most people focus on interest rates, and monthly payments, but forget about that pesky credit report.

The good news is that there are things that can be done to mitigate the damage and help anyone who has missed a payment repair their credit. What are some options to help homeowners get back in the good graces of their creditors? Continue reading “If You Miss One Mortgage Payment Will it Hurt Your Credit Rating? Yes! Here’s What to Do if You Miss One.”

Can I Have A Co-Signer For My Mortgage Loan?

Can I Have A Co-Signer For My Mortgage Loan?Like credit cards or car loans, some mortgages in Sacramento allow borrowers to have co-signers on the loan with them, enhancing their loan application.

However, a co-signer on a mortgage loan doesn’t have the same impact that it might on another loan. Furthermore, it poses serious drawbacks for the co-signer. Continue reading “Can I Have A Co-Signer For My Mortgage Loan?”

Buy A New Home Just One Day After A Short Sale or Foreclosure? Yes, You Can!

Flex-Banner_600x315px_mockup5Comstock Mortgage, has been helping buyers into homes for over thirty years. Buyers can qualify for the Flexible Credit Home Loan Program just six months after bankruptcy – and just one day after short sale or foreclosure.

Losing your home to foreclosure or going through a short sale is one of the most disheartening experiences the modern homeowner can endure. Traditionally, a defaulted mortgage has meant years of poor credit and renting rather than buying. Continue reading “Buy A New Home Just One Day After A Short Sale or Foreclosure? Yes, You Can!”

3 Important Credit Steps Before You Make That Offer

I don't want to know!
I don’t want to know!

Thankfully, I have wonderful clients and agents who are properly educated on what to do BEFORE they get into contract to buy a new home in Sacramento. First and foremost, get yourself prequalified for a home mortgage and have your credit profile reviewed by a mortgage professional you trust, to avoid any pitfalls you may encounter when you get that accepted offer. Continue reading “3 Important Credit Steps Before You Make That Offer”