As discussed in a Wall Street Journal article today, "yields on benchmark 10-year Treasury notes rose to 1.881%, compared with 1.866% Tuesday, which was their highest level since January 2020". On the same day, yields on interest rate-sensitive two-year notes rose to 1.055% from 1.038%.
Why are we interested in this? Because mortgage rates tend to be highly correlated with treasury yields - but there are exceptions. For example, during the stage of the pandemic we're coming out of, the Fed engaged in MBS purchases and other quantitative measures which kept mortgage rates in record low territory despite the elevated treasury yields.
But at the beginning of 2022, we are facing a slightly different environment. Reporting on their December FOMC meeting, the Fed cited from its Open Market Desk survey the expectation that it will raise the federal funds rate beginning in June 2022, that it will accelerate its reduction of purchases of MBS securities, and that it may end net asset purchases in March.
These anticipated measures by the Fed may put upward pressure on mortgage rates.
So how will mortgage originators who are on the ground respond?
These macro-economic shifts are outside the control of mortgage originators. At the corporate level, lenders are reviewing products, warehouse lines, secondary market strategies, and hedging pipelines and servicing portfolios.
At the loan officer level, the preparations for mortgage markets shifts are largely left to the individual. The question for loan officers boils down to "do you have strong relationships in the local market to drive purchase originations (and possibly cash-out refinance mortgage originations)?"
To answer that, loan officers and brokers go to their real estate agent and builder referral network, and many go deeper by connecting to local community organizations and events. Great! But in a tighter mortgage market, loan originators and loan officers have to also invest in a long-term relationship building strategy. Here is a very recent example.
In December, The Port of Greater Cincinnati Development Authority (The Port), announced that it will purchase 194 single-family homes owned by an outside "institutional investor", upgrade the properties, and eventually sell them to the renters who live in them. Today, a few weeks later, the WSJ covered the behavior of people in response to the Port move. The WSJ pointed out the story of a renter who, in response to the news that the Port will allow renters of these units to move to ownership, immediately made an appointment with a Loan Officer. Perhaps this deal will take some time to develop and close; in fact it might take a few months. But investing in this kind of relationship today will pay dividends later.
So how do you stand out in your market, when interest rates are rising, and opportunities are few? The answer is to invest in getting to know your market. What are the mortgage and home purchase trends? Where are investors buying properties in the local market? What is the response of local housing authorities to housing events, like investor purchases or an affordability crisis? How can you help? Is your suite of mortgage products adequate to serve the needs of new home buyers? What loan products have been successful in meeting the credit needs of low-to-moderate (LMI) or first-time homebuyers (FTHB) or veterans or naturalized citizens or minority borrower, etc.?
All of these questions can be answered through interacting real-time with dashboards found in Polygon Research's apps, which instantly illuminate the facts and equip you to stand out in your local market with knowledge and good strategy that benefits you, benefits the home buyer, the local government, and society at-large.
If you would like to see this analysis in action, please schedule a free 30-minute analysis with our awesome team to get you started.
Photo credit: WSJ