The TRUE Cause of High Mortgage Rates

Do you know what causes high mortgage interest rates?

You may be quick to point the finger at Jerome Powell and the Federal Reserve, and you’re partially right, however, the full answer may surprise you.

We’re exposing the truth about high mortgage interest rates in today’s video!

The Federal Reserve has commanded some outsize attention this year with their systematic and significant increases in the federal funds rate.

Those increases tie directly into many types of lending – for example credit card interest rates that are “prime plus” generally have increased very quickly in lockstep with the feds’ rate increases.

Mortgage interest rates have obviously risen as well – almost doubling since spring.

However, mortgages are much more complex instruments, and the key driver is almost invisible to the average borrower shopping for mortgages.

When lenders extend mortgages, they generally will not hold on to the loans themselves.

Rather they will frequently place them into bonds that are available to investors.

During the pandemic, with bank deposits soaring and an abundance of investable cash on hand, banks snapped up these bonds at a brisk pace, which held mortgage rates at near record lows.

The biggest buyer was the Federal Reserve itself, which purchased huge chunks of the bond markets to stimulate the economy during the pandemic.

Its holdings of mortgage-backed securities roughly doubled from before the pandemic to $2.7 trillion.

The 10 banks that own the most mortgage-backed securities increased their holdings by almost $219 billion last year.

However, as the fed funds rate has stepped up repeatedly this year, banks and other institutional investors, including the Federal Reserve itself, have moved away from those bond purchases.

The 10 largest bank owners of mortgage bonds trimmed their holdings by $133 billion during the first nine months of 2022.

The Federal Reserve itself hasn’t bought bonds at all in the past couple months.

The smaller pool of buyers who are still interested in investing in the bond market are demanding higher yields, which means in turn that mortgage lenders have to pass along higher rates to homebuyers.

Until the supply and demand in the mortgage bond market moderates, mortgage rates are unlikely to make any significant downward adjustments.

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Видео The TRUE Cause of High Mortgage Rates канала VIP Financial Education