The size of the economic lift from any program to
Markets rattled by gloomy economic reports and recurring shock waves of political dysfunction have pushed the yield on 10-year Treasuries down by more than a percentage point in two months. Mortgage rates have trailed behind, inducing a jump in loan volume.
The rate for 30-year mortgages has fallen by 46 basis points since the beginning of July, to an average of 4.23% during the week that ended Sept. 2, according to the Mortgage Bankers Association.
The trade group's index of refinance applications was up by as much as 66% from its level at July 1 during the same period (see charts).
Activity has faded in recent weeks and volumes have not approached levels reached last time mortgage rates dropped by as much, during a period of gathering economic pessimism in the second half of last year that prompted the launch of
Still, the increase in production is a sharp turnaround from expectations for a prolonged drought that
Moreover, in a
The gap between the average rate for a 30-year mortgage and the yield on bonds into which such loans are packaged increased by about 41 basis points since the beginning of July to about 105 basis points at Sept. 2.
The relationship between asset prices and yields is inverted, so higher consumer rates relative to secondary market rates indicate higher profits for lenders, which mostly sell mortgages on to investors.
The wide differential is largely explained by production bottlenecks when broader market rates drop suddenly: demand for mortgages at lower rates exceeds lenders' capacity to process them, so prices available to consumers move with a delay.
To be sure, origination revenues are just one of the elements that determine the bottom line for mortgage operations. On a different page of the ledger, lower rates should simultaneously reduce the value of servicing portfolios. Most seriously, the industry is still being
Nonetheless, Flagstar Bancorp, a relatively large mortgage lender based in Michigan that has struggled with losses for years, has already
In a note in September, analysts with KBW Inc.'s Keefe, Bruyette & Woods Inc. raised their earnings projections for the company, forecasting that the strength in mortgage activity would continue through the beginning of next year.