Special Report: Coronavirus and Mortgage Rates

Plymouth Title Guaranty Corporation Special Report Coronavirus Mortgage Rates

This past month saw a tremendous increase of attention given to the ongoing COVID-19 pandemic. President Trump declared the pandemic a national emergency with plans to increase testing and shut down travel to Europe.

Schools, restaurants, bars, sporting events, and other nonessential businesses are closing down for the time being. Across the country, Americans are now preparing for a period of isolation and social distancing. 

The fallout has been disastrous for the stock markets which have seen unprecedented drops over the last few weeks. With the Fed’s announcement that they’re slashing interest rates to zero, new homebuyers and refinancers were given a window of opportunity. Although mortgage rates previously declined to record low levels, they’ve now seen the highest surge since January 2020.

As treasury yields continue to decrease to unprecedented lows, many people wonder why mortgage rates, too, have fallen to the same degree.

There are two main reasons why mortgage rates must be higher than the treasury yields.

Repayment Risk

Mortgage-backed securities (MBS) have a repayment risk that treasuries do not. Mortgage rates must fall and rise more slowly to compensate for that risk.

During periods of decline, MBS become less valuable as more people refinance and their loans are removed. During periods of growth, MBS become more valuable. 

Supply and Demand

Even the largest mortgage companies can only handle so many loan purchases at a time. Rates are set in an attempt to meet supply and demand, but there is currently much more demand than supply. There is no incentive to lower the rate tremendously and increase that demand further.

It is also important to note that the short-term rates set by the Fed do not have a direct impact on mortgage rates since they are long-term. Mortgage rates are influenced by a variety of factors, so it takes more time for rates to reflect any significant changes.

For further information on treasury and mortgage rates, get in touch with one of the title and escrow specialists at Plymouth Title Guaranty Corporation.

Information accredited to MBSQuoteline.