Mortgage rates have been hit hard on two fronts over the past month. The first front is the obvious one: the bond market has moved in a way that forces rates to go higher. To be fair, it’s almost always the bond market that forces rates to go wherever they’re going.
A vast majority of the day-to-day movement in rates is a simple function of the trading levels in specific bonds. This has been and will continue to be the case, possibly forever. February (and now early March) economic data caused traders to worry about higher inflation and resilient economic growth. This makes traders want to sell bonds more than buy them, and that results in higher interest rates.
But bonds aren’t always everything when it comes to rate movement. The “everything else” category changes in composition depending on the landscape. For instance, during the 2020-2021 refi booms, rates were often limited by mortgage lenders’ capacity to handle new business. The bond market actually allowed for much lower rates at times, but lenders simply couldn’t handle the volume.
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There’s a different problem in the “everything else” category right now. The regulator overseeing Fannie and Freddie recently changed some of the upfront fees required for all conforming mortgages (conforming = guaranteed by Fannie and Freddie). Depending on a borrower’s credit score and the amount of a home’s value they wish to borrow, their rate could instantly rise by 0.125% simply because a lender implemented the new fee requirements.
Without the impact of those fees, rates could still be in the high 6% range, or close to it. As it stands, the average lender is now back up into the low 7’s for a well-qualified 30yr fixed scenario. These aren’t the highest levels we’ve seen during this cycle, but they are the highest in more than 4 months (and not too far away from the long-term highs just under 7.4%).
Incidentally, Freddie Mac’s rate survey came out today and it showed 30yr fixed rates at 6.65. Understand that most of Freddie’s survey responses come in on Monday and rates have risen since then. The survey also includes upfront points and does not include the new fees that are hitting a vast majority of borrowers. If we were to adjust for the market movement that’s happened since Monday, the upfront costs, and the fees, Freddie’s number would likely be right in line with 7.1%.