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mortgage underwriting were disrupted by
the virus. I inspectors were unwilling to go to
properties for fear of virus and closing table
meetings were not taking place because of virus
concerns.
Additionally, mortgage servicing rights
stopped trading. ose servicing rights serve
as collateral and help independent mortgage
companies get liquidity. When these mortgage
servicing rights stopped trading many lenders
had to maintain very wide spreads and this
resulted in higher rates.
Now that mortgage servicing rights are
trading again, that source of liquidity has
returned and the need to keep spreads wider is
gone. We therefore expect spreads will narrow
and mortgage rates will fall going from current
levels going into next year.
e Fed has committed to monthly
purchases of $80 billion of U.S. Treasuries
and $40 billion worth of mortgage-backed
securities. ose two activities continue to
expand the balance sheet, but the central bank
swap mechanism, which they had put in place
to maintain liquidity globally has started to
shrink. Also, none of the other programs that
they have out there are fully subscribed at this
point.
I don't know that you're going to see much
additional done from a Fed perspective, in
terms of additions of new programs or changes
in existing programs. ey are going to wait to
see how the effectiveness of existing programs
works. ey'll maintain interest rates, the Fed's
funds target, in a range of zero to 0.25 for the
foreseeable future.
If you look at our forecast for this year, the
average 10-year treasury rate will probably be
about 0.9%. e 10-year Treasury will average
about 0.8% in 2021. If that is the case and
mortgage to treasury spreads shrink, you're
probably going to see 30-year fixed mortgages
somewhere in the 2.75 percent range at some
point over the course of the next year.
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