DENVER-The clock is ticking on historically low mortgage rates, meaning credit unions must start to make some adjustments.
That is the message from Dan Green, EVP of marketing for Mortgage Cadence.
"Right now, credit unions should be examining and tuning up their secondary mortgage market practices," he said, noting rates must make a turn upward at some point. "No one knows when, but a look at the 140-year history of the 10-year Treasury Note shows cycles go up and down in roughly 30-year increments. If the cycle repeats, the trend up will continue for a while."
Many lenders have made a "fair amount" of money on their approach to secondary mortgage market in the past few years of declining interest rates, Green continued. When the borrower locks, the lender can choose to lock with the investor or float. If the lender floats and the rate goes down, the lender picks up a gain.
"But when rates are going up, it takes a different strategy," he advised. "The lender needs to hedge the pipeline by locking with the investor when the borrower locks, which guarantees income from the spread. There are more sophisticated hedging strategies, also, but that is the simplest."
The loss is "always bigger than the gain" if a mortgage lender tries to float when rates are going up, Green warned.
