Atlanta Mortgage News

Good afternoon,

A few weeks ago, the industry saw a rate drop due to a volatile 10 Yr US Treasury. Today, the industry is giving out higher  rates while things are constantly changing and evolving in these unprecedented times. Here are perhaps the main risks influencing rates today, not specific to any lender but the mortgage industry as a whole:

1. The market has been extremely volatile lately, and the recent pattern of the market tanking-rallying-tanking-rallying is resulting in expensive and dangerous margin calls often costing an entire point or more. This is a VERY risky time for lenders to take new locks under these market conditions, which is a big reason you are seeing rates industry-wide that seem to say, “We aren’t locking right now”. To survive this storm, mortgage lenders have to make very smart decisions, including not taking huge indeterminable risks that could be detrimental to the longevity of the company.

2. Mortgage Backed Securities are viewed as riskier today in these anything-but-typical market conditions we are currently seeing because:

1. There is a concern that a disproportionately large number of the mortgages closing now will be paid off via refinances within 12 months (AKA “EPO, Early PayOff”) if rates drop again when the market stabilizes, resulting in an enormous cost to the original lenders. 

2. There will certainly be a huge influx of missed mortgage payments in the coming months due to factors such as Fannie Mae and Freddie Mac temporarily suspending foreclosures and evictions, new forbearance options allowing borrowers to delay some mortgage payments, and borrowers losing their jobs or experiencing a pay cut affecting their ability to pay their mortgage payments. Some estimate that 25% of borrowers may not make their mortgage payments in the coming months. 

NOTE: Under current policy, mortgage servicers are STILL responsible for paying the principal, interest, taxes, and insurance to the bondholders, even when the borrower does not make the mortgage payments to the servicer. This is expected to cost the mortgage servicers up to an estimated $40 BILLION dollars over the next 3-4 months across the industry without Federal help.