The state of the mortgage market amid coronavirus: Quicken Loans CEO
Jay Farner, CEO of Quicken Loans, joins “Squawk Box” to discuss the state of the mortgage market and the Fed’s reaction to the coronavirus crisis.
As investors and financial markets struggle to find their footing during the coronavirus pandemic, the effects are hitting consumers where they live – in mortgage rates. Not only are rates swinging wildly day to day, they are varying more dramatically lender to lender.
In just the past four weeks, the average rate on the 30-year fixed has lifted above 4%, plunged to 3.25% and then rocketed back up and back again multiple times. In normal times, interest rates don’t do that.
So what’s going on?
First, in its response to massive job losses and furloughs, Congress passed a relief package which includes a bailout for mortgage borrowers, using forbearance. Borrowers with government-backed mortgages can tell their lenders they have financial hardship and be allowed to delay monthly payments for up to a year. They still have to pay that back at a later time or through a mortgage modification plan. About 2 million forbearances have already been granted in barely a few weeks, according to the Mortgage Bankers Association. Here’s the problem:
“Mortgage investors are guaranteed timely repayment by mortgage servicers and housing agencies, but the volume of forbearances could mean there’s not enough cash for the normal guarantees,” said Matthew Graham, chief operating officer at Mortgage News Daily. “The result is drastically reduced demand among investors until they get a better sense of the fallout. Lower demand = higher rates.”
Then there’s the Federal Reserve. The central bank not only lowered its rates to zero in response to the crisis, but also began buying mortgage-backed bonds. That artificially increased investor demand, but at different levels every day, adding to volatility in rates. It also caused a massive rush by consumers to refinance.
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