Self-described 'mortgage mentor' explains why rates fell only slightly
Mortgage rates fell on Monday in the aftermath of regional bank failures -- the average rate on a 30-year fixed home loan dropping to 6.57% from 6.75%, according to media reports.
That rate is down from 6.76% on Friday and 7.05% on Wednesday, according to LinkedIn News. For a buyer seeking a new 30-year mortgage on a $500,000 home with a 20% down, the monthly payment would be $128 less than a week ago, the site reported.
Mortgage rates often move in line with the yield on the ten-year Treasury note, which is at its lowest level in more tphan a month, as the site reported.
What two banks recently failed?
Last week, the federal government took over Silicon Valley Bank, which endured a $1.8 billion after-tax loss before its collapse. Signature Bank failed under the weight of its cryptocurrency ties.
Rebecca Richardson, a Charlotte, NC-based mortgage loan originator with UMortgage, addressed the matter. The self-described “mortgage mentor” sought to assuage fears the bank failures development was comparable to the Great Recession of 2008.
“Are you a little spooked from the bank failures?” she asked. “Is it feeling a little too 2008 for you?” she added before explaining why mortgage rates have not dropped as much on the bad financial news in the banking industry. She referenced the Great Recession, when mortgage-backed securities nearly wrecked the economy.
“Now for background: Mortgage rates are based off of bonds mortgage-backed securities to be exact,” Richardson said. “And typically when there is bad economic data or the market isn’t doing so well, bonds will do well. So bonds will go up, rates will go down. And that’s why during recession, rates typically go down on mortgages.
“Now what has happened with these bank failures is kind of the epitome of negative economic news, or market chaos. And while that typically helps mortgage rates, you get to the point of diminishing returns is and it stops helping mortgage rates.”
What is the Fed doing to fight inflation?
The Federal Reserve now has shifted its focus, she noted: “The Fed has been laser-focused on taming inflation. Now they have to turn their focus on a more pressing issue and that’s confirming the stability of our banking system, which is too much market chaos.
“So while a little bit of bad news is a good thing for mortgage rates, a lot of bad news is not. And that’s why we’re not seeing a huge drop in rates the way that we should based on how the bond market is performing.”
It might be a while before the dust settles, she suggested: “Until things stabilize and everyone feels more confident on where this is going, it’s going to be extra volatile. Stay tuned.”
Meanwhile, Mortgage Professional America has received unsolicited notices from banks reiterating their own financial strength in the wake of the California bank failures. Among them:
- RYVYL officials on Monday issued a statement conveying they have no exposure to Silicon Valley Bank and Signature Bank. “Although the Company had deposits with Signature Bank of NY in the past, it has recently moved its entire ecosystem to other banks,” officials wrote. “Additionally, the Company never held deposits or otherwise collaborated with SVB, and therefore, RYVYL’s operations as a company are unaffected by SVB’s closure. The Company believes SVB’s collapse further demonstrates that its coyni technology is superior to other digital payment structures with its USD-pegged architecture, transparency, stability and security.”
- Similarly, Communities First Financial Corp. issued a statement distancing itself from the failed banks. “Communities First Financial Corporation, parent of Fresno First Bank, today announced that after 17 years of being known as “Fresno First Bank,” the Fresno Community Bank will be changing its name to “FFB Bank” (the “Bank”). In light of recent events involving certain regional banks, the Bank also announced it continues to maintain strong capital levels and healthy reserves. “With the sudden failure of Silicon Valley Bank and Signature Bank, we want to underscore the importance of maintaining strong capitalization and diversified sources of funding,” said Steve Miller, FFB Bank president and CEO. “Our capital levels are solid, and we have been consistently profitable, evidenced by the last two years of record earnings. We navigated through a similar time from April 2020 to October 2020 following the PPP and Banks’ COVID Loan deferrals, which stabilized credit quality and Capital fears.”
- IInter&Co, Inc. also issued a press release to convey it has no exposure to Silicon Valley Bank. Inter&Co is the holding company of Inter Group and indirectly holds all of Banco Inter’s shares. Inter is the premier Super App providing financial and digital commerce services to more than 25 million customers in Brazil and the US, according to its corporate literature.