MBANow: Economist Lynn Fisher on Fed, Interest Rates

The Mortgage Bankers Association released a new MBANow video on YouTube featuring MBA Vice President of Research and Economics Lynn Fisher, who discusses interest rates and recent actions by the Federal Reserve.  

The video can be accessed at https://www.youtube.com/watch?v=xVIt4ImXZoM&feature=em-uploademail.       

The federal funds rate and mortgage interest rates are closely tied together, Fisher said. “Mortgage applications, and refinance applications in particular, are going to tick up when interest rates fall; to a lesser degree, it will impact the volume of purchase applications.”  

Additionally, Fisher said, interest rates influence the housing pipeline, hedging activities and the value of mortgage servicing rights. “It also affects the value of those mortgage servicing rights, because as expected prepayment speeds fall, they become a more interesting asset to hold.”  

Fisher said three actions by the Federal Open Market Committee to raise the federal funds rate in the past two years hasn’t necessarily resulted in mortgage interest rate increases. She noted that mortgage rates are more tied to 10-year Treasury yields. “And those yields can be tied to investors from all around the world,” she said. “While 30-year fixed interest rates are certainly going to trend up, there could still be periods in which 10-year Treasury yields go down, which will push down mortgage rates in the short term.”  

Fisher said she expects the Fed to unwind its portfolio of securities and MBS. “That could have a couple of impacts on mortgage rates,” she said. “We might see spreads widening a bit between the 30-year fixed mortgage rate and the 10-year Treasury yield, maybe by as much as 15 basis points”  

Other videos in the MBANow series can be viewed at the MBA YouTube channel, https://www.youtube.com/watch?v=Swk2VUJeZFI&feature=em-uploademail. The videos are also available on the MBA Insights landing page, https://www.mba.org/publications/insights/insights-publication##SubscriberID####RND##&PageID=21109.