But as the COVID-19 pandemic rapidly spread in March, many of the nation’s consumers were either forced to work remotely or not at all, as the incredibly infectious disease forced countless businesses to close their doors.
This, in turn, put pressure on U.S. markets as the Department of Labor reported nearly 3.3 million people filed for unemployment the week ending March 21.
In an effort to stabilize the economy, the Federal Reserve announced a pledge on Monday to purchase unlimited amounts of Treasuries and mortgage bonds, which they believe will grease the wheels of the credit markets.
The purchases also attempt to avoid the type of credit crunch seen after the collapse of the financial system in 2008 and could result in new lows for home-loan rates.
But will these rate declines benefit the housing market?
In an exclusive video interview, HousingWire spoke to Mountain Lake Consulting’s CEO David Stevens about the economy’s recent turbulence and what the Fed’s decision means for the mortgage industry.
Stevens, who is the former president and CEO of the Mortgage Bankers Association and an industry titan who currently serves on several advisory boards, explains why bond-buying may or may not be good for the market.
This interview has been lightly edited for length and clarity.
Q: This week, the Fed announced the unlimited purchase of MBS and treasuries, adding multifamily. How do you think this will impact the housing market overall?
A: That was a critical move, as anybody in the mortgage industry knows rates increased the week prior, and that was due to what we call an imbalance in the supply of mortgage-backed securities in the marketplace.
This was caused by two things: one was the origination pipelines were very full and then secondly, a lot of holders of mortgage-backed securities, were unloading them based on concerns about prepayment speeds.
It was not only causing rates to rise but it was also putting some institutions at risk for margin calls. This could have had a really negative impact on the economy.
So, the pressure was put on the Fed starting late last week, and people were working all through the weekend trying to get an announcement. While we were actually hoping for an announcement Sunday evening, it came Monday morning and it was a critical announcement that they would step in and create what’s called a short in capital market standards, and that has helped bring rates down.
I think as everybody knows, mortgage-backed security pricing really rallied over the last day or so. And while other issues are affecting interest rates, it’s having a really good impact so far.
Q: We know bond-buying is aimed at providing liquidity and pushing rates lower. Do you think this is likely to bolster the economy?
Well, the variables we’re facing right now are entirely different. Two weeks ago, we were barely talking about the coronavirus, and now, the whole world has changed. So, there’s a lot of things affecting rates.
It’s not just the value of mortgage-backed securities, it’s servicing values and servicing values have worsened fairly significantly.
What we don’t know is the details of the $2 trillion legislative package that has just been announced and hasn’t even been drafted yet. At this point, It’s just the terms on an agreement.
As of today, these things are all going to have an impact on the supply of treasuries in the marketplace, because they’re going to have to raise money to pay for this legislation.
So, on one hand, the bond-buying should drive rates lower in a traditional sense, but what we don’t know is what the overall supply of debt is going to be and what it ultimately means for interest rates.
Read the rest of the Q&A and watch the full video interview with Stevens below.