What's Going On With Mortgage Rates?

What was supposed to happen to rates in 2014?

When the Federal Reserve announced plans to taper mortgage bond purchases back in mid-2013, momentary panic ensued. Rates jumped and things started to look pretty dismal for anyone in the mortgage industry, as this was supposed to be just the tip of the iceberg. It was predicted by some that rates would continue to rise throughout 2014, reaching 4.8% for a 30 year mortgage during the second quarter, and 5% in the third. So far, quite the opposite has occurred.

Mortgage Rates Are Trending Slightly Downward

Contrary to some of the doomsday-esque predictions of late 2013 and early 2014, rates have actually dropped since the start of the year. In January, the average rate for a 30 year mortgage was at 4.53% whereas currently the average rate is at a slightly lower 4.33%.

Lower Rates Don't Lead to More Originations

Unfortunately, the slight drop in rates hasn’t spurred on an increase of mortgage originations. However, this is most likely a key factor in why rates haven’t risen. While the Federal Reserve has reduced the amount of money it spends on MBS, its percentage of the market remains relatively the same. As originations are down, it takes less capital to maintain the same percentage of the market. Since the Federal Reserve is maintaining that same percentage, it is reflected in the current rates. So, based on this pattern, an increase in originations would be an excellent economic indicator but would likely lead to an increase in rates.

What Does All of This Mean for Lenders?

Whether you are a broker or a lender, until the current economic landscape changes you can’t expect a sudden increase in originations. That being said, the outlook shouldn’t be entirely bleak. Applicants won’t be knocking down your door for a loan, but you will still get some applications, so take full advantage of whatever is coming in. You can use this time to refine your processes and get a higher percentage of your applicants approved. Until we see an increase in originations, that is your best bet for success in lending.

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