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Volatile Market. Rates - Not So Much.

Alexis: Hey, everyone. Welcome back to the Mortgage Rundown. My name is Alexis Quinney, and this is Jason Obradovich, CIO of New American Funding. Hey, Jason, how are you doing today?

Jason: Good, Alexis. How are you?

Alexis: I'm doing good. So, what is going on with mortgage rates? I know that there's been a lot of ups and downs lately. So where do we stand today?

Jason: You know, really, a lot of the calamity and all the volatility that happened in March has really gone away. So that's where we saw mortgage rates going down, back up, back down again. And really, since the Federal Reserve started buying mortgage-backed securities, quite honestly, if you look 60 days ago today, mortgage rates are almost in the exact same position. And so that has been the Fed's job ... to take the volatility out of the market. Let's create a lot of certainties. When you create volatility, you can end up putting a lot of mortgage companies out of business. You can confuse borrowers like it just creates a lot of chaos. And they've done a really great job of holding mortgage rates very consistent for the last two months. And likely that's going to continue for a while. 

Alexis: OK. Well, I understand the Federal Reserve is keeping rates consistent. Are mortgage rates going to go any lower than they are right now?

Jason: You know, that's really going to be dependent upon the Federal Reserve. Prior to this event, it was the market that drove mortgage rates up and down. You would see mortgage rates generally move up and down with Treasury rates. But now the Federal Reserve has come in and said, ‘You know, we're going to hold Treasury rates here. We're going to hold mortgage rates here by buying mortgage-backed securities.’ And so, we don't really know what their plan is. The presumption is they want to keep volatility out of the market and keep consistency in the market. And so more likely than not, they're going to keep mortgage rates low for quite a while. Whether or not they lower rates even further down the road, we don't know. It would probably depend on the economy and what happens with the shutdown and some of the social disruptions that are going on. We don't really necessarily know. But as of right now, I would say, if I'm a betting man, rates are going to stay very consistent at a very low level like they are today for quite a while.

Alexis: Got it. So, switching gears a little bit: What's the state of the mortgage industry as a whole looking like away from the Federal Reserve? Like, what else is going on?

Jason: Yeah, the Federal Reserve did a great job of keeping mortgage rates consistent, which really helps protect the industry, but outside of that, there are a lot of challenges going on. Starting with forbearances, I believe right now or as of today, about nine percent of all U.S. mortgage borrowers are in a forbearance plan. That doesn't really mean they're not making their payment. It just means that they are protecting themselves, that if they miss a payment, their house won't be foreclosed upon. You know, one of the big lessons learned from the ‘08 financial crisis was we really want to keep borrowers in homes—that protects housing, that protects the borrower and allows them to continue to make an investment when these times of volatility kind of disappear and move into the past. And so, the forbearance plans are a great tool to do that. I think the politicians were a little bit irresponsible with how they rolled it out by telling everyone, ‘Hey, you don't have to make a payment.’ That's not the case. But there are other challenges. You know, some of the big challenges we had in March were margin calls where some mortgage lenders ran out of cash. And the Federal Reserve has helped solve that situation.

Servicers are having difficulty with advances. So, in this scenario, if borrowers don't make payments, the servicer is supposed to collect those payments and give those payments to the investor. Well, if they don't receive them, they can't pass them on to the investor. And in some cases, the servicer has to give the investor the money, whether the servicer received it or not. And so those are other challenges the industry in Washington, D.C.  are dealing with. And quite honestly, they've made a lot of headway. I think there are a lot fewer concerns, you know, maybe 90 percent fewer concerns than there were in March. And so, you know when you look at the challenges, they're not completely gone. But they’re certainly a lot better than they were two months ago when the whole thing kind of fell apart.

Alexis: Yeah, that's great to hear. Only time will tell, I guess.

Jason: Yeah, absolutely.

Alexis: Alright. Thank you so much for hopping on with you today, Jason. This was extremely helpful…a lot of great information and I really appreciate you taking the time to talk to me today!

Jason: Absolutely, Alexis. I enjoyed it!