April mortgage deliveries by the agencies Fannie Mae, Freddie Mac and Ginnie Mae showed a rise in deliveries of mortgages to the two agencies for both home purchases and refinances. Purchase mortgage volumes reflect a normal seasonal pattern, while refinances experienced a sharp spike upwards in response to low levels of interest rates. Given normal (and possibly growing) lags related to closing times, many of these contracts were signed in March when rates had already dropped sharply but the full impact of the Covid-19 virus on stay-at-home policies was not yet fully felt.
The onset of the COVID-19 virus has resulted in tremendous volatility in financial markets. The 10-year Treasury yield plunged from 1.9% at the beginning of 2020 to a record low near 0.5% in early March but has since rebounded to near 1.1% at present. The drop in Treasury yields has not been matched by a similar decline in mortgage rates. The 30-year fixed mortgage rate released by Freddie Mac on March 19 came in at 3.65%, just 0.07% below the level attained at the beginning of the year.
In the wake of the economic dislocation that occurred with the onset of the Global Financial Crisis, (GFC), central banks responded with a variety of policy innovations, including Large-Scale Asset Purchases (LSAP’s), also known as Quantitative Easing (QE). Different central banks have implemented these programs in distinct ways, but the Federal Reserve purchased massive amounts of Treasuries and mortgage-backed securities (MBS) to place downward pressure on long-term interest rates. (Chart 1)