Will Rates Rise or Fall?

JP Morgan strategists believe the Fed's QE programs may need to grow even more to purchase the huge increase in supply of new debt issued this year by the government. If the Fed doesn't increase QE JP Morgan is concerned that bond yields and thus interest rates could rise. This makes perfect economic sense to me.

But, Realtor.com chief economist Danielle Hale believes mortgage rates will flirt with 3% for the majority of the year before slipping below 3% by the end of the year to an average rate of 2.9% which is about 40 bp lowers than today. Frank Nothaft, chief economist for CoreLogic agrees. Fannie Mae in their May forecast expects rates to remain in the low 3's this year before falling to an average rate of 2.9% for all of 2021.

Matthew Graham, chief operating officer of Mortgage News Daily said, "In a situation where people are able to return to work sooner than expected and in greater numbers, rates might not fall much lower. On the other hand, the more negative economic outcomes would suggest 2.5% by the end of the year." I believe Matthew hit the nail on the head.

Two weeks ago United Wholesale Mortgage, our nation's largest wholesale lender, announced 30 year fixed mortgage rates below 3% for their most credit-worthy borrowers who are willing to pay points to get a lower rate. So, the question is being asked, "Why don't other lenders do this?" First, the ability for borrowers to ask for payment forbearance easily has caused risk of early defaults to soar. I wonder if UWM has a special deal with Fannie and Freddie to mitigate this risk?

Since UWM has lowered their rates below 3% I am sure they are already running into supply constraints and closings will be taking much longer. As I have told clients for many years the lowest rate or lowest fees will NOT MATTER IF YOUR LOAN DOESN'T CLOSE because that lender can't get you to closing on time.

Thus, I believe once the ability to ask for forbearance ends we will see mortgage rates DROP! But, will there be the political will to do this?

Finally, to get mortgage rates lower we will need the Fed's help and we are starting to get it. How? Over the last 2 weeks they have been very slowly buying mortgage bonds in the 2% coupon for the first-time ever. Last week they purchased 1.45 billion in 2% coupons out of a total of $30 billion purchased.