Federal policymakers' confirmation of a 25 basis point tightening in short-term rates aimed at quelling inflation gave home lenders that had already priced in this possibility a brief counterintuitive respite Wednesday afternoon.
Long-term home loan rates initially ceased their rise and declined by 0.125% to .25% shortly after the 2 p.m. release of the Federal Open Market Committee's move, according to Jeremy Schachter, branch manager at Fairway Independent Mortgage Corp.
"With the Fed trying to tame inflation with this increase, mortgage rates improved today," he said.
The improvement reflected some relief that the committee's move was in line with consensus expectations lenders had already priced into their rates and that it had taken a step to address inflation.
"Assuming the outlook isn't really drastically changed, we probably get a plateau in mortgage rates," Selma Hepp, chief economist and senior vice president at Cotality, said in a mid-afternoon interview on Wednesday.
However, things changed during Fed Chairman Kevin Warsh's press conference, said Melissa Cohn, regional vice president at William Raveis Mortgage.
"When the press conference started and Warsh repeatedly said that inflation was still a great risk, the markets turned as they feared this one rate hike was not enough," Cohn said.
The base interest rate at which a 30-year fixed rate mortgage can be sold at par while retaining servicing ended up roughly 2 basis points on the day, rising from 6.86% to 6.88%, according to Vice Capital Markets.
Whether rising oil prices can be brought under control will be a key driver of where financing costs head next, according to AnnieMac CEO Joseph Panebianco.
"The path to lower interest rates for the US economy, and relief for homeowners, can only come from oil flowing again," he said.
How to handle the rate environment
Lenders are going to go further in their exploration of the creative mortgage products that can address the shortage of rate incentives for borrowers while keeping in mind that despite the fact that the Fed views the national economy as strong, there are pockets of concern within it.
"I really think that innovation becomes a primary focus for the mortgage industry," Hepp said.
Keeping borrowers apprised of both product options and the rate outlook can help with origination in the current environment, according to Tiana Uribe, a broker at Tru Financial Services.
"On purchases, I advise clients to lock rates as soon as they are under contract. I haven't told a buyer to wait for rates in years. If we can structure the payment to fit the borrower's DTI, I advise them to move forward and purchase the house," she said.
Seller concessions for rate buydowns, lender credits, and shopping among multiple investors based on the scenario also can be useful strategies, according to Uribe.
Because home equity lines of credit are more directly tied to the short-term rates the Fed is raising, she suggests directing borrowers to alternatives in some instances.
"For refinances, I'm advising clients with variable HELOCs to consider a fixed rate loan or refinancing into a 30 year loan even if they have a low first mortgage rate, particularly when they are consolidating higher-interest debt," Uribe said.
