Refinance rates under pressure from agency lender struggles

Mortgage refinance rates are being pressured to stay above six percent despite the recent drop in oil prices and the rapid sell off of the stock market. The ten year bond has dropped from 4.26 to 3.82%, yet fixed mortgage rates remain relatively unchanged.

The major reason mortgage rates remain at their current levels is a lack of demand in the secondary marketplace. Mortgage rates are priced similar to other commodities and are greatly influenced by the supply and demand of investors in mortgage backed bonds. The current marketplace is void of investors who are looking for mortgage bonds as the housing market has resulted in billions of losses for mortgage lenders and investors.

The two largest agency lenders Fannie Mae and Freddie Mac are under severe financial pressure as their balance sheets continue to grow and their capital ratios shrink. The long term concern that these lenders may fail has also been a great influence on the marketplace for mortgage bonds. The lenders have also continued to increase their rate adjustments for credit scores, loan to value and property types.  Home owners who have procrastinated with refinancing their mortgages are going to be left with more limited options and a market that is becoming more challenging to negotiate price breaks with the current mortgage lenders. Home buyers may be missing a golden opportunity to purchase homes at historical lows and secure financing under seven percent.