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Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.

I hope everyone had a great Pesach, in what was truly a unique experience for most. I think its fair to say that most people are experiencing unimaginable deviations from their norms, the likes of which we have never seen in our lifetime. Of course, continued prayers to all those who have been impacted and affected by the Coronavirus in whatever capacity that may be.

After health concerns and ramifications, one of the biggest impacts that we are experiencing as a result of this pandemic is on the economy. So many businesses and households are seeing a direct hit as it relates to their income or employment. The numbers are frightening, and perhaps only beginning to intensify.

In a strained economy, stocks and equities struggle, and money is moved into safer assets such as bonds or treasuries. This crisis is unique in that stocks and bonds are misaligned from their normal patterns and contrasts. Stocks and bonds have been volatile and erratic, causing even more anxiety for those attempting to navigate their positions. The Federal Reserve and U.S. Treasury have done a great deal to bolster the banking sector and to provide liquidity for the bond markets. Trillions of dollars in stimulus has already been deployed, and they have only begun to disseminate capital to the areas that have been impacted. A lot more money will need to be printed to truly protect essential industries from collapsing.

I say all this, to bring up the matter of current mortgage interest rates. In early March there was a brief window where we saw mortgage rates drop below 3.00%. It occurred after a day of major market upheaval, where it was announced that COVID-19 cases crossed 100,000 globally. Simultaneously, oil futures witnessed the biggest daily slump since 2014 after the Organization of the Petroleum Exporting Countries and Russia (OPEC+) failed to reach a deal to cut production. The three major stock indexes dropped to 9-month lows, and the U.S. 10-year Treasury yield dropped to a new record low of below 0.8%.

Rates plunged rapidly to true historical lows, with many people who were in touch with the right people to get rates below 3%. Before we could turn around, traders started to asses the situation and liquidity froze across the financial and banking sectors. The Fed stepped in with their first round of emergency announcements, cutting “The Fed Funds Rate” to a record 0 percent. Within 24 hours thereafter rates spiked to almost 4%. With that, market fundamentals were compromised, as fear and uncertainty crept into the marketplace.

Over the past few weeks, rates have finally begun to stabilize. The Federal Reserve is doing an amicable job in keeping rates rangebound in the low-to-mid 3’s depending on credit profile. The problem however in the mortgage world is that it is no longer about driving rates lower. The primary focus has shifted to try to maintain a functioning secondary market and managing the credit-quality of new and existing loans.

Within a few days of being announced, an unprecedented 7% of mortgage borrowers have applied for “mortgage forbearance,” where they are permitted to “skip” at least their next three payments, without penalty. I have previously written about some of the risks and ramifications of exercising that option, and will not address that here. Those delinquency and default numbers are expected to rise. Banks are struggling to handle the demands, and are positioning themselves for a major increase in unemployment, and the surge of more people who will be unable to make future mortgage payments.

They are also beginning to predict the impact on real estate and home values as a result of the economic decline. We have seen banks such as Chase and Wells Fargo already increase their standards of mortgage eligibility, making it harder for people to obtain loans now. This is only the beginning. We are currently at lower levels in stocks, bonds and treasuries then when rates dipped below 3.00% a few weeks ago. There are more than 2.5 million people infected with COVID-19 globally, and almost 200,000 deaths reported. Crude oil has now plunged below $0 a barrel, a historical benchmark.

So why aren’t mortgage rates below 3%? The simple answer is, there is a great deal of pain and suffering out there, and unfortunately, I believe the worst is yet to come, G-d forbid. Banks are pricing in greater risk and losses in their mortgage portfolios, and limiting their exposure to any further credit or product threats. When people tell me, “they are waiting for rates to drop below 3%,” I say it might happen, but it will come with many strings attached, the likeness that most people would not want to see. I hope I am wrong. Shout out to all the kids who are “back in school.”

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