We know that lenders in all verticals are worried about how the interest rate hike will impact their business endeavors; however, not every type of lender will experience the full impact of the Feds interest rate hike, such as mortgage lenders. Mortgage rates tend to move with the government’s 10-year Treasury note, which means that the overall movement of the Fed’s rate does not have a large, immediate, or direct impact on long-term mortgage rates.
Current house hunters will not experience much impact from the Fed interest rate hike because interest rates on homes are still relatively low and the rates rose before the Feds interest rate increase. This was due to the anticipation from the Fed and because of the Republican control of Congress and the White House. This means that the continued increase in mortgage rates will be due to the belief that the economy will improve and inflation will increase, rather than the Fed.
The Fed doesn’t directly set mortgage rates, but its actions can affect the housing market, for example, even though current home hunters will not experience the impact from the rate hike homeowners with an adjustable rate mortgage, or ARMs might end up with bigger payments when the adjustment rolls over. This is because ARMs are tied to indexes that are extremely sensitive to the market and Fed. Remember that it’s not just the Fed that can influence mortgage rates.
Mortgage rates are still extremely low and aren’t expected to rise above 5% this year, although this quarter point increase may deter some borrowers or create sticker shock for those shopping in expensive neighborhoods or for those who are on the margin of being able to afford a home. House hunters should not panic and mortgage lenders need to continue mailing campaigns that reflect these market conditions to show potential home buyers that purchasing a home has not become unattainable due to the Fed interest rate hike. Mortgage lenders should also make sure to send out fixed rate refinance campaigns to those with adjustable rate mortgages since they are most susceptible to the effects of the interest rate hike. Greg McBride, chief financial analyst at Bankrate said that “If the Fed hikes rates three times this year, that could make your next payment a doozy.” The increase in interest will slow down the housing market, but to counter this you might begin to see mortgage brokers lowering the qualifications to be able to receive a loan, especially with the talk about the deregulation of the Dodd-Frank law that pertains to mortgage lending.
Although mortgage lenders will not be directly impacted by future interest rate hikes they should remain vigilant for subsequent increases because the Central Bank is expected to raise rates three times this year. If their actions become more aggressive, it could bring a sharper escalation in mortgage rates. Gumbinger said that “The global economic picture is a little warmer and things are pretty good. Markets aren’t just reacting to what the Fed is doing, but the prospects of the rest of the world as well.”
Now is the best time for mortgage lenders to utilize market conditions. If you are a lender who wants to improve direct mail marketing so you can better your campaign tracking, customer acquisition, customer retention, response rates, and ROI, all while lowering your cost per acquisition; call us at 800-769-3050 or message us below. Our data triggers for the mortgage lending industry will recognize detailed activity criteria that goes further than just recognizing new home buyers!
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