The 15-year fixed-rate average rose to 3.06 percent with an average 0.5 point. It was 3.03 percent a week ago and 3.97 percent a year ago. The five-year adjustable rate average slipped to 3.31 percent with an average 0.4 point. It was 3.32 percent a week ago and 3.85 percent a year ago.
“Rates remain near three-year lows, but in recent weeks have not dropped nearly as low as we would expect given the fact that bond yields have fallen markedly over the same time frame,” said Matthew Speakman, a Zillow economist. “The connection between Treasury yields and mortgage rates — two metrics that typically move in unison — has frayed in recent weeks, in part due to increased refinancing activity, weakening investor demand for mortgages, resulting in higher-than-expected rates.”
Mortgage rates are influenced by many factors, but they tend to follow the same path as the 10-year Treasury. When yields go down, rates usually follow. Except yields have been plummeting, and mortgage rates haven’t fallen as dramatically.
The yield on the 10-year Treasury, which sank to 1.47 percent on Wednesday, has plunged 43 basis points since the start of the month. Mortgage rates have drifted down 20 basis points.
“Mortgage lenders determine the rates they can/will offer based on MBS prices and other considerations,” said Matthew Graham, chief operating officer of Mortgage News Daily.
Mortgage-backed securities are investments in mortgages that have been bundled together. When investors buy MBS, they pay more than the face value of the mortgages with the expectation they will recoup the extra amount they paid from the interest payments on the loan.
But if rates fall and the borrower holding the loan refinances, the investor could earn less or maybe even lose money. A borrower’s ability to refinance makes investors leery of MBS.
“Big, fast, volatile moves in Treasurys throw investors’ MBS valuation models way out of whack,” Graham said.
The spread between the 10-year Treasury yield and MBS prices is the greatest it has been in seven years. Graham says it may take weeks if not months for spreads to return to historically normal levels.
“That’s assuming the bond market can calm down a bit,” he said. “Even then, all the recent underperformance seen in mortgages won’t vanish instantly. It will be a gradual return to a more normal level.”
“Do not expect much, if any of a drop in mortgage rates in the coming weeks,” said Mitch Ohlbaum, president, Macoy Capital Partners in Los Angeles. “It’s not because they shouldn’t, it’s because the lenders are already beyond capacity with refinances and frankly do not want any more volume.”
According to the Mortgage Bankers Association, independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $1,675 on each loan they originated in the second quarter of 2019, up from $285 per loan in the first quarter.
Meanwhile, mortgage applications tailed off. According to the latest data from the MBA, the market composite index — a measure of total loan application volume — decreased 6.2 percent from a week earlier. The refinance index fell 8 percent from the previous week, while the purchase index dropped 4 percent.
The refinance share of mortgage activity accounted for 62.4 percent of all applications.
“Mortgage applications decreased for the second consecutive week, but low rates continue to drive activity to much higher levels than earlier this year and last summer,” said Bob Broeksmit, MBA president and chief executive. “MBA is forecasting for mortgage rates to remain at around 4 percent through the rest of the year, which is good news for both homeowners looking to refinance and prospective buyers.”
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