Mortgage rates fell to an all-time low in the last week, and lenders across the country are now dealing with a deluge of mortgage applications as borrowers rush to both buy and refinance. But are some of those same lenders keeping borrowers from getting even lower interest rates than they already are?
The answer: Possibly.
The mortgage business is clearly in uncharted waters now, with interest rates falling below 3.3% for the first time ever.
The yield on the benchmark 10-year U.S. Treasury note continues to fall every day to new record lows, and mortgage rates typically track with the 10-year Treasury. As of Friday afternoon, the yield on the 10-year Treasury was roughly 0.76%, but it had never fallen below 1.1% as recently as last week.
Given the typical spread between the 10-year Treasury and mortgage rates, borrowers should be able to get an interest rate in the neighborhood of 2.75%, or perhaps even lower than that.
But that’s not happening, at least not across the board.
Why? Because it appears that some lenders are trying to protect themselves from being crushed by demand.
HousingWire spoke with numerous lenders, mortgage brokers and other mortgage professionals this week, and several shed light on an emerging trend wherein some lenders are keeping rates higher than they could be because they are not fully equipped to deal with the surge of demand they are seeing.
The term that several used for this phenomenon is “throttling,” with lenders keeping rates above where they could be to ensure they can fulfill all the business they are getting.
The issue, as several mortgage professionals told HousingWire this week, is capacity. Put simply, there is only so much volume that mortgage companies can handle. Some can handle more than others, depending on their size and technological capabilities. But others are already being stretched thin by the surging demand.
Several lenders shared that they’ve heard of other lenders having to extend their lock windows to as much 180 days because they’re concerned they won’t be able to close these new loans for as much as six months.
Now, it’s possible they’re telling tales out of school, but for comparison, the latest data from Ellie Mae shows that the average time-to-close (the period between loan application and loan closing) across the industry was 48 days in January.
So instead of a month and a half, some lenders may now be quoting six-month closing windows. Subsequent reports from Ellie Mae and others will show if closing times begin to rise.
LoanDepot CEO Anthony Hsieh directly addressed the capacity issue in a press release issued Thursday. “The current market conditions can create exceptional opportunities for consumers, but I think it’s going to be critical for consumers to be very knowledgeable and, importantly, very patient,” Hsieh said. “The analogy I would use is this: when you are using shared Wi-Fi at an airport, sometimes speed can be slowed because everyone around you is trying to use the same services. This market is unpredictable, but upcoming capacity demand for refinance may create a similar, slowed experience.”
Hsieh suggested that many lenders may be “over capacity” in the next two to three months. At its core, the issue is how much mortgage business can the mortgage business handle?
Several industry professionals told HousingWire this week that they are seeing some sizable shifts in mortgage rates on a minute-by-minute basis. They said that interest rates are fluctuating so wildly right now that they’re struggling to keep up.
One mortgage professional said another factor is that for many lenders, there is safety in the pack. Basically, if all other lenders aren’t dropping their rates below 3%, a lender will keep their interest rates around the same level to ensure they’re able to keep their heads above water.
For many lenders, it seems to be about finding the sweet spot of pulling in as much mortgage business as they can handle and no more. So lenders are walking a tightrope right now, trying to determine what’s the appropriate mortgage rate that will attract exactly as many borrowers as they are able to handle.
The bottom line is that the mortgage business is in a whole new world right now and trying to thread the needle as best as it can. Time will tell on whether all of these companies will be successful in that endeavor.