Ask the Loan Man by Hans Bruhner — April 2020
We were slowly moving towards historic low interest rates literally all year. Rates started moving down slowly and methodically as these things usually do and arrived at the low point at the beginning of March. We had these historic low rates for an entire week (3/2 – 3/6). The following week (3/9 – 3/13), we lost ALL of the gains from the prior two months in dramatic fashion.
I need to tell you a secret, something not a lot of people know. People always talk about investing in Stocks & Bonds like they are the same, but they are not. They operate in much the same way and they are traded in the same places, but they are almost always opposites. You see, Treasury Bonds are a government backed security instrument with low risk and a lower rate of return than the stock market. You invest in a Treasury Bond at a fixed rate of return for a period of 10 to 30 years. Mortgage Backed Securities (MBS) closely resemble bonds but they are slightly different because they have the possibility of paying off early when people refinance or sell their home. The rate of returns for MBS are a bit higher than Bonds. When investors are disillusioned with the stock market, they typically pull their money and put it into Bonds and MBS. The week of March 9th, people were pulling money from the stock market but also selling off Bonds and Mortgage Backed Securities and even selling off Gold.
Yeah yeah Hans, fascinating but when do we get to my ZERO INTEREST RATES?!? Ok, calm down there Sparky, I’m there. On Sunday March 15th the Fed announced they would cut the fed funds rate effectively down to zero. There is your 0% interest rate! But this is the Fed Funds rate which is the rate which banks borrow and lend excess reserves on an overnight basis. The Fed cuts the rate to stimulate the economy and bring back liquidity and confidence in the stock market. So, normally this move should have an opposite effect on mortgage rates and make them move higher.
The Fed was really smart and also decided to buy Bonds and MBS to the tune of 700 Billion dollars to help shore up this sector of the market. Monday March 16th I was ready for rates to gain back some of our losses of the prior week and move lower and this did happen. We then proceeded to have a roller coaster week. I made a video about it instead of trying to explain all of this to each client who inquired and you can view it at this link: http://vid.us/v1kktf if you watch the video, please email me for a snapshot of the market in real time so you can use them together to see where we are now.
The bottom line is that myself and all professional Mortgage Advisors watch these things and help their clients make well informed decisions to help them with likely the largest debt of their lives. We use this information to help our clients lock loans in those small windows of time that the big banks simply can’t do. You need to work with a professional Mortgage Advisor to ensure that you get the best possible advice, it could save you tens of thousands of dollars.
Need to know more? Please send me your real estate and mortgage related questions. I am happy to answer you and it may become the topic of a future article.hans@hansblog.com
