Blame or cheer Brexit as 30-year rates expected to drop below 3%


Celebration is in order this weekend. Not only for July 4th Independence Day but also because soon enough, you’ll be able to finance or refinance your love shack with a 30-year fixed for under 3 percent.

Oh my goodness!

Thirty-year mortgage rates have never been that low in the 45 years since Freddie Mac began tracking them in 1971. But it’s going to happen now.

“I would agree,” said Chris Whalen, senior managing director at Kroll Bond Rating Agency when asked if borrowers will soon be able to get a 30-year under 3 percent. “The 10-year (treasury bond) will go down to 1 (percent),” he added. The 10-year is currently at 1.49 percent.

Blame (or cheer) Brexit.

Great Britain voted June 23 to leave the European Union. The 10-year closed at 1.74 percent that day. The following day the 10-year closed at 1.58 percent. That’s 16 screaming basis points better.

Mortgage rates or mortgage-backed securities typically mimic the 10-year Treasury. Yet, rates today are just a little bit better than they were on June 23. You would normally find much lower rates with that much improvement in the 10-year bond market.

Doug Duncan, Fannie Mae’s chief economist, said the end of the quarter creates a sticking point.

There could be several issues, Duncan said. Funding availability of warehouse lines of credit that lenders use to fund loans could be drawn down. Loan funding production needs to fill out mortgage-backed securities commitments. Banks and credit unions have to meet reserve requirements.

Duncan explained that market participants know risk exists and they can hedge for risk.

“Nothing like (Brexit) has been attempted before. The uncertainty leads to volatility. Increased uncertainty will slow economic activity. Low (rates) for long,” Duncan added.

Many of the folks that refinanced three or four years ago are at it again. This go-round I am seeing more cash-out borrowers who’ve enjoyed the appreciation run-up, coupled with rate reductions and term reductions.

When will consumers find 30-year rates under 3 percent?

“A product at that rate already exists and is being traded,” said Fannie Mae spokesperson Katie Penote.

The very best 30-year fixed rate I could find from more than a dozen lenders is 3.25 percent with just under 1 point plus about $3,000 in closing costs. My guess is that you’ll be able to find that 30-year under 3 percent commonly within the next four months.

Consumers can hedge too. You should be able to get 3.5 to 3.625 percent on a 30-year fixed and pay nothing (assuming good credit, equity and a loan amount of $417,000 or less).

Look again toward the end of the year. Maybe double-down and pay some closing costs because you’ll never touch that sub-three percent loan again.

“If rates fall, (you’ll see) more acceleration in house prices,” said Duncan.


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Jeff Lazerson - Mortgage Columnist since 2011