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You are here: Home / Industry News / What the Fed’s Emergency Rate Cut Means for Mortgage Rates

What the Fed’s Emergency Rate Cut Means for Mortgage Rates

March 19, 2020 By Ralph Gates

What does this mean for your mortgage rate?  The Fed funds rates doesn’t directly affect any mortgage rates apart from home equity credit lines.  While it often moves in the same direction as the traditional 30-year fixed mortgage rate in the long run, there are months and even years when they seemingly have nothing to do with each other.

The Fed Funds Rate applies to loans with a term of one day. That is why we sometimes see longer and shorter term rates move in OPPOSITE directions (which accounts for the “inverted yield curve” phenomenon that made news in 2019 when 10-year Treasury yields were lower than all of the short-term rates under two years, including Fed Funds).

But, even if long and short-term rates always moved in the same direction, there’s a more important reason that mortgage rates might not follow the Fed.  The bonds that dictate mortgage rates trade thousands of times a day.  Mortgage lenders update rates at least once a day.  In contrast, the Fed only meets to consider changing its rate eight times a year, barring emergencies (like Sunday).  This means mortgage rates can and do move well in advance of Fed rate changes.  Indeed, the behavior of longer-term rates like mortgages can often predict the market conditions that prompt the Fed to make a move.

The Fed did announce a new mortgage bond buying as a part of its QE package today (QE- Quantitative Easing is the term for the Fed’s large-scale bond buying programs designed to lower interest rates and encourage free flow of lending/capital).  This will help restore the correlation between 10-year Treasury yields and mortgage rates, but it WILL NOT immediately restore the normal space between them.

While mortgage rates take cues from the broader bond market (especially when markets are relatively calmer), they move for several other reasons.  That caused a lot of head scratching this week as mortgage rates jumped at the fastest pace EVER while many were still waiting for them to drop as much as Treasury yields had dropped.

One of the biggest reasons for the mortgage vs Treasury disconnect was a massive supply of new mortgage debt caused by rampant refinance demand recently.  After all, even if people felt like rates SHOULD BE lower, they nonetheless hit new all-time lows last Monday and successively broke 3-year lows in weeks prior.  This flood of mortgages needed to be sold to investors for mortgage lenders to keep lending.  But investors were no match for the unprecedented spike in supply.  Like any marketplaces with way too many sellers and not enough buyers, prices rapidly fell, and falling prices on mortgages equate to higher rates for consumers.

So, what should you do?

If you haven’t done so already, make sure your Mid America Mortgage Loan Officers have what they need in order to lock your loan when the time is right.  Make a game plan.  Talk about where rates are now and what rate you’re looking to lock.   Make sure that they have everything needed in order to lock.  They may not have a very big window in which to pull the trigger (that window was less than a few hours wide at the all-time low rates last Monday morning).

Filed Under: Industry News

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Mid America Mortgage Services, Inc, NMLS #1142067
200 E Walnut St.
Columbia, MO 65203

Phone: (573) 875-1100

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"One of the main things that I loved about Michelle was she was so organized. She would meet us at any location she needed to, and to be honest she had the absolute lowest interest rate. They were always very transparent with fees so there were no surprises. Michelle was always super easy and we would always run in talk to her even it was for a few minutes. The best thing was the process was very, very smooth."

Chris and Jamie

"I have had mortgages since 2004 in Columbia and have gone through a couple of banks, but over the last several years, the last couple of houses have been with Mid America Mortgage Services, Inc. Michelle has told us many times, 'I am not going to put you in a situation I am not comfortable with you being in, regardless of what it means for our company'.

Heidi always has a smile on her face and when you walk through the door, they recognize you and say “Hi”. I definitely recommend anyone who is in the home buying, purchasing, refinancing, upgrading business to go to Mid America Mortgage Services, Inc, ask for Michelle because they are going to be the best person you can work with."

John

Selling our home of 17 years and building a new home was a very emotional time for our family. We were ready for the next adventure in our lives but knew there were numerous steps involved. The search for a mortgage officer was simple, Michelle was our choice. Her guidance and knowledge made the process as easy as possible. When we had questions, she was always there to give us an answer and discuss our options. The employees of Mid America Mortgage Services, Inc like Michelle will keep us returning for our mortgage needs.

Chad and Julee

"My family owns Tiger Ice Company. My experience with Ralph at Mid America started with Tiger Ice because we needed to expand our facility. When we went in to talk to Ralph at Mid America, he pretty much was straight up with us and told us we needed to go back to the drawing board. We came back with new numbers and a new plan, and we built the facility and everything was fine. Our dream of that would not have been possible at all without Mid America Mortgage Services, Inc and Ralph. They don’t tell you what you want to hear, they tell you the truth and that's what we weren't getting from other banks."

Andy

"They really explained the process to us very well and made us feel very comfortable, specifically Jeanie Byland. I have never asked a question that I felt dumb about. They really wanted to educate us and have been fantastic. The interest rates changed one day and they called me to say, ‘Hey we might ought to look into refinancing your loan’. I really felt like they had our best interest at heart."

Steve

Michelle, I want to thank you for all of your efforts on the loan. I never knew how much information the needed! I appreciate your personal nature and ease of working together. Thank you for making this happen! :)

Amy

"I’m a very loyal customer at Mid America Mortgage Services, Inc. I have an addiction to building houses and designing them, and they are always right there with me every step of the way helping me get the best loan product and the best rates whenever I am ready to build. They make sure you don’t get a loan that you can’t afford. The whole process was very smooth. I would recommend Mid America Mortgage Services, Inc to anyone because they are always there to teach you, help you, and make it easy for you every step of the way."

Kate

"When we were 18 and 19 years old no one wanted to help us get started. But Michelle took us under her wing 6 years ago next month. There is a lot of people out there that could of taken advantage of us many of times because we had no idea what was going on. For Michelle to stand beside us and walk us through, and not let us get into something that could get us in a lot of trouble means the world. We thank Michelle and we are extremely blessed to be able to work with her and her team. I have never even thought about talking to another lender and will always be loyal to Mid America Mortgage Services, Inc."

Cody and Morgan

"I knew Jeanie Byland for a long time. She made the process so easy. One of the things I probably appreciated the most was that she didn't want to spoil the excitement of closing on a new house by showing up on closing day finding out that we owe a lot more than we thought. They were upfront with that information right from the get-go, and that’s because it’s just like they say, ‘They wouldn’t put you in a loan that they would be comfortable taking themselves.’”

Jamie

"My wife and I have moved around quite a bit with my job so we have been through the process before, but we have never had anybody help us as much as Michelle West Mid America Mortgage Services, Inc did. We needed a loan for a new construction home and they were able to help us out with all of our needs and make us feel comfortable with what we were doing moving forward. They did a good job of walking us through the paperwork to make sure that we were pre-approved for a certain amount."

Jason


Phone: (573) 875-1100
200 E Walnut St, Columbia, MO 65203

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