Major fiscal and monetary stimulus out of the U.S. helped to thaw out the mortgage-backed security market which locked up last week in response to unprecedented volatility in global financial markets caused by Covid-19.
The Fed’s response was big and bold as was Congress’s and it helped to soothe the secondary mortgage and corporate bond markets. However, with a third of the U.S. not working, it is unclear how lenders will underwrite loans.
For the moment, Insignia’s lender partners are being quite flexible in structuring new loans, but this could change over time should U.S. workers be unable to return to work in a few weeks.
The non-QM mortgage banking sector of the market has been decimated. Those types of loans, which are riskier by nature, are on hold. We imagine that a fair number of lenders who offered these types of loans will go out of business or greatly scale back their loan products.
Thankfully, Insignia Mortgage has spent years building relationships with community banks and local credit unions. For the moment, these federally-regulated lenders are actively lending, albeit a bit more cautiously. Nonetheless, they remain active and willing to provide financing to our borrowers.
Currently, borrowers should understand that there’s a disconnect between U.S. Treasuries trade and mortgage rates at the moment. Lenders are trying to balance the increased risk associated with this pandemic against loan volume against a backdrop of a very difficult work environment. Don’t be surprised to receive rate quotes higher than what you would imagine given the low rates the U.S. government is borrowing at.