SPOTLIGHT ON…

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The Rieger Report has identified a unique set of data that can be used as early indicators of future mortgage rates. The data is generated from a series of Optimal Blue  indices tracking rate locks. Learn more about the Optimal Blue indices here.

The Mortgage Origination Pendulum

Mortgage lenders are facing unprecedented circumstances as they determine how to navigate an economic and societal lockdown and the Federal Reserve’s aggressive response, both via rate reductions and “unlimited” Quantitative Easing. Although the 10-year Treasury has remained at or near all-time lows, the tremendous uncertainty in the capital markets has led to volatile swings in both mortgage rates and origination volumes for lenders coping with the chaos.

Figure 1. Mortgage Rates vs. 10-Year Treasury

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Source: Optimal Blue Mortgage Market Indices, Federal Reserve Economic Data (FRED) | St. Louis Fed

Mortgage rate locks in the Optimal Blue Marketplace Platform, a leading indicator of mortgage originations and a proxy for mortgage application volume, rose to all-time highs in early March before rapidly retreating. Based on Optimal Blue’s daily Mortgage Market Indices (“OBMMI”), mortgage rates fell as low as 3.221% for 30-year conforming loans, prompting a refinancing wave that tested the capacity of the originator community. Since, lending activity has been on a pendulum as mortgage rates swung wildly, somewhat out of concert with the 10-year Treasury. Rather, this rate movement has been driven by volatile Mortgage Backed Security (MBS) pricing – the primary factor for lenders setting mortgage rates – fueled by investors’ mounting liquidity concerns.

Figure 2. Mortgage Rates vs. Origination Activity

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Source: Optimal Blue Market Analytics, Optimal Blue Mortgage Market Indices

The Federal Reserve announced on Monday that it will buy bonds, including MBS, at whatever level is needed to support a functional market, which appears to have calmed investor concerns, at least temporarily. MBS pricing has stabilized, and mortgage rates have crept down, providing a good opportunity for those looking to refinance or purchase a new home.

While refinancing has driven most rate lock production spikes in March, purchase loan volume was also unseasonably high through the first half of the month. However, lenders looking toward the typically busy spring home-buying season are closely monitoring the effects of COVID-19 (Coronavirus Disease 2019). Purchase loan volume, a traditionally steadier origination source for lenders, is particularly vulnerable as concerns grow about showing homes.

Figure 3. Refi vs. Purchase Activity

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Source: Optimal Blue Market Analytics

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About Optimal Blue

Optimal Blue’s Marketplace Platform connects the industry’s largest network of originators, investors, and providers. More than $750 billion of transactions are processed across the platform each year, facilitating a broad set of secondary market interactions like pricing, locking, hedging, and trading of mortgage loans. For more information, please visit www.optimalblue.com.

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About the Author

Brennan O’Connell is the Data Solutions Manager at Optimal Blue.

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