Mortgage Rate Watch
Mortgage Rates Near Long-Term Lows Despite Taper Talk

"Taper talk" refers to comments, speeches, or official policy communications from the Federal Reserve (aka "the Fed") that speak to the timing and nature of a reduction in the Fed's bond buying activities.  Wow!  What a boring and potentially confusing sentence!  Let's try again...

The Fed buys bonds--US Treasuries and mortgage backed bonds (which, in turn, serve as the foundation for mortgage rate pricing).  This helps rates move or remain low.  When markets think the Fed is going to stop buying bonds, rates are at risk of moving higher. 

The current bond buying efforts began as a response to the pandemic.  They helped stabilize the financial system and they provided "accommodation" (a boost to overall economic activity intended to support the Fed's goals on inflation and job growth).  As the pandemic grew more manageable and especially as the economy has come back online, the Fed has increasingly discussed winding down (or "tapering") the bond buying programs.  

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What Will The Fed Do To Mortgage Rates?

Wednesday afternoon brings one of the year's 8 regularly scheduled policy updates from the Federal Reserve (aka, the Fed).  While there's no question that Fed policies have significant impacts on all kinds of interest rates, the Fed doesn't actually "set" mortgage rates.  The only limited exception would be for certain lines of credit that adjust based on the PRIME rate which, in turn, is based on the Fed Funds Rate (the thing the Fed actually DOES "set").  Even if the Fed Funds Rate had a direct bearing on mortgage rates (it doesn't), there's no chance that they'll announce a rate hike this week, let alone this year.

So why do we care about the Fed?  Why have we seen such big moves in mortgage rates after certain Fed announcements in the past? 

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Mortgage Rates In Best Territory Since February

This week's mortgage rates are hard to compare to last week's.  There are two simple reasons for this.  The first is the recent removal of the adverse market fee that artificially increased rates for refinance transactions starting late last summer.  The second is the general strength in the bond market compared to last week.  Mortgage rates are, after all, based on trading levels in the bond market with higher prices (or lower yields) coinciding with lower rates.  Bonds aren't doing quite as well as they were doing on Monday, but because lenders didn't rush to drop rates as much as the bond market allowed earlier in the week, they haven't had to dial things back as much as bonds would suggest over the past 2 days.

Now today, bonds are improving once again, albeit only slightly.  Still, the fact that improvement is even on the menu when bonds are operating in their best range since February is impressive.  The average mortgage lender isn't offering quite the same rates seen on Tuesday morning, but they're close.  Moreover, apart from the past few days, we'd have to go back to February to see anything nearly as low.

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Mortgage Rates Substantially Lower This Week, But Under Some Pressure Today

There are two pieces of big news for mortgage rates over the past few business days.  The first arrived last week in the form of the removal of the adverse market fee that artificially increased rates for refinance transactions starting late last summer.  The second arrived yesterday in the form of an impressive improvement in the bond market (bonds are the primary source of motivation for mortgage rates).  This friendly double whammy pushed the average lender easily into the lowest rate range since early February with conventional refinance quotes once again coming in under 3.0% in best-case scenarios.

It remains to be seen how long we'll be able to enjoy these rates.  Today's bond market volatility offered a warning.  The first few hours of trading were actually stellar, with bonds improving to significantly better levels than yesterday.  This was actually partly responsible for this morning's rates being even lower than yesterday's.  Then, in less than 2 hours, all of those gains were gone, and mortgage lenders were issuing negative reprices early this afternoon.  Granted, rates are still stellar, even after those mid-day price changes, but the intraday volatility is a reminder that rates can move in two directions.

 

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Big News For Refi Rates As Adverse Market Fee is Removed

It was big, bad news when it came out last summer.  Almost a year later, the 50 basis point "adverse market fee," which affected a majority of refinance mortgages has been eliminated!

Backstory

In early August 2020, Fannie and Freddie (who collectively buy or guarantee a vast majority of all mortgages) announced that virtually all conventional refinance loans would be subject to a new fee of 0.50 points (e.g. an extra  $1500 upfront on a $300k loan, or a 0.125-0.25% increase in rate).  

After much protest, the implementation of the fee was delayed at the end of August.  Lenders ultimately began adding it back into rate sheets en masse by mid September.  All of the above can be seen in the following chart which shows the effects on average daily rates.

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