Here we go again. The Fed raises rates but the mortgage rates drop. Rates are up; rates are down. Now is a good time to buy; now is a good time to refi. Which is it?
The mortgage market is a crazy business. When rates start to rise, it’s time to get off the fence and buy. However, when rates decline, everyone starts talking again about refinances (Refi’s ) but is that what’s best for the business.
Refinancing loans has sustained the mortgage lending industry for quite some time now. Many lenders, and LOs, have only known an industry with a high percentage of their business generated from people refinancing their homes. Not a bad thing; but not a sustainable line of business, or so we thought.
Although refi’s put money into lender’s, and consumer’s pockets, they also take people out of the purchase market. This results in fewer move-up buyers and fewer loans for such buyers. Many of those who refinance were first-time buyers leaving fewer homes at the lower end of the scale for new first-time, or low to moderate income buyers. This bottlenecks the process.
Companies that invested in mortgages, or mortgage-backed securities, are adversely effected due to write offs, or write-downs, resulting from loans/securities that they purchased being paid off early when refinanced. Hopefully they’re prepared for such write-offs if rates drop again, and it looks as though they may.
Having said all this, I wouldn’t expect that today’s lenders would punch a gift horse in the mouth and ignore refinancing opportunities which will exist if rates drop again, as many experts predict. So, lenders need to be prepared to service the needs of their customers and let the chips fall where they may.
The key is in educating the public on what is available for both refinancing their current home and for the financing of a new one. Low rates may just be the ticket for many to move up while keeping their monthly debt obligation relatively stable. When given all the facts and all the options for financing, the consumer can make the choice which best suits their needs.
Either way, lenders get the opportunity to lend. After all, for them, that’s what it’s all about…
BTW, no horses were harmed when writing this blog.