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The Feds Cut Rates

On Sunday, the Feds announced that they were cutting the Federal Funds Rate to Zero. What did this announcement really mean for the mortgage industry? The Federal Funds rate is the overnight (short-term) rate that that banks use to lend money to one another. Although this rate cut does NOT directly impact Fixed mortgage rates, it does impact other consumer short-term lending products like HELOCs, credit cards, auto loans, etc.

Why did interest rates spike so much last week?

The Coronavirus news began slowly affecting mortgage rates in January, but really caused rates to hit an all time low in late-February and first week of March. This meant that almost every homeowner in the U.S. was eligible for a refinance. Due to historically low rates, there was about $1 Trillion in refinance loans locked in a week. On average, the mortgage industry as a whole will process about $2 Trillion in refinance volume in a year! This lead to capacity issues for the industry as it was not built to handle the unprecedented wave of applications and caused banks to increase mortgage rates overnight.

What does this mean for purchases, refinances, and future rates?

Again, $1 Trillion in one week when banks normally process about $2 Trillion in a year. The capacity issue banks are currently managing is temporary. Once the volume of refinances received are processed, it is anticipated that rates will decrease again. Keep in mind, current rates being offered to consumers are still considered historically low and it could take months to potentially reach the lows we recently saw. We are committed to maintaining our competitive contingencies and close of escrow dates on purchases, as well as helping current homeowners identify refinance opportunities with the current and future rate market.

We Fund LA Team

The We Fund LA Team

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