Give Me Some Credit

During the first hints of volatility at the start of March, the flight to safety drove interest rates to multi-year lows and had lenders cutting mortgage rates to be competitive in what looked like the start of a new home refinancing boom.


The cost to borrow quickly fell to multi-year lows and mirrored the drop we saw in Treasury yields. Yet, as the equity market selloff intensified, it brought almost equally as turbulent activity to bond pricing and the credit markets. Spreads between Treasuries & Municipal Bonds and Treasuries & High Yield Corporate bonds flummoxed the markets and caused major selloffs in both high- and low-quality debt. With the fixed income markets in turmoil, lenders became apprehensive to add more debt to balance sheets, leading to a sharp spike in interest rates as the risk to issue new loans increased. As the market became increasingly illiquid the Federal Reserve was spurred into action to infuse cash into the market and cut interest rates back to zero.


Another concern is that an increase in forbearances is tightening credit. Typically, lenders securitize the loans that they process into Mortgage Backed Securities (MBS) which can then be bought and sold on the secondary market. If borrowers decide to (or must) go into forbearance before the loan is packaged and sold, the lender is stuck with that debt on their books with less liquidity to continue originating more loans. It maintains a higher level of concentrated risk for each lender instead of diversifying the pool of risk through the securitization process.


While it’s taken weeks for each monetary stimulus measure to incentivize lenders to re-enter the market and lower their rates to match the near-zero benchmark rates, we are starting to see some increased activity in the mortgage rates to continue along this trajectory for quite some time. Home equity lines of credit are often based on the prime rate, which has fallen 1.5% over the last month to 3.25%. This not only makes it much less expensive to tap into the equity in your home for short-term cash needs but it also provides much needed relief for those who have already done so as their interest falls.


Your home and investment properties are important pieces of your overall financial picture and we encourage you to include that information on your Karp Capital Client Portal. It not only will allow you to get a better snapshot of your entire financial picture, but it will allow us to incorporate those assets into the strategic financial planning we do for you. With your most current mortgage information on the portal, we can easily alert you when refinancing could be in your favor.


The unlimited document storage vault also allows you to securely store your important financial documents, such as the Note for your loan, monthly statements, insurance information, and tax documents. By storing this information in one place, it makes it easier for you to complete financial projects like refinancing, taxes, or estate planning.


Give us a call to start preparing a file to jump on lower rates and build out your client portal. With the shelter-in-place, it presents an opportunity to gather the information you’ll need to make the most of the tools we have available for you. If you need help uploading and entering the information to fully form your financial picture, we’re available to walk you through each step of the way.