Mortgage Rates, Bank Failures, Fed Meeting

Last week we were expecting employment numbers and the inflation news to affect the Fed meeting next week. Now we are still looking at those reports but also bank failures! That was not on the radar for most people until this weekend. So what does that mean for mortgage rates?

Last week Silicon Valley Bank was the target of a bank run and the FDIC took over the company on March 10th. It was the first bank failure since October 2020 and it was followed by another failure in New York by Signature Bank. There were many meetings and lots of discussion over the weekend but the final result was the Federal Reserve created a Bank Term Funding Program over the weekend. This program offers loans to banks, credit unions, etc for up to one year using US Treasuries, agency debt and mortgage backed securities to help the banks through this and to calm financial markets. Silicon Valley had catered to venture companies, start ups and high net worth individuals. This means if they pulled their deposits, there would be big amounts of money at stake from a small number of companies. There are many banks like Wells Fargo and Chase that have many bank accounts with millions of customers, so there isn’t a reason to expect a bank run.

Next week the Fed meets and they had been expected to raise rates by .50% (originally it was expected to be .25 but with inflation numbers not decreasing enough and employment numbers still strong, investors started pricing in a .50 basis point increase). Once the news of the bank failure hit, the expectations of a Fed increase decreased. Monday it was expected to be .25%, now it’s possible that they do not raise rates at all. Investors are also expecting the Federal Funds rate to be at about 4.14% in December 2023 compared to 5%+ as of last Friday. There is talk that the Fed may start cutting rates next fall.

So the bond market has been moving quickly this week! As banks fail, mortgage rates tend to go down. We saw the bond market improve on Monday, got a bit worse on Tuesday but Wednesday we saw more improvement as news came out about banks in Europe feeling the pressure also. The Fed has been forced to stop the increase in rates to reevaluate the rate hikes. If the Fed holds rates steady next week and talks about a more careful watch on rates, banks, inflation, etc; we could see mortgage rates move down more. Things will be a bit volatile while banks and mortgage lenders navigate this environment. Mortgage pricing will be a bit cautious as no one wants to get caught on the wrong side of things. We may see pricing changing more than once a day which has been common lately.

The bottom line is mortgage rates should continue to improve over time this year and into 2024, but things could be choppy too! Don’t be surprised if there are days where we see increases too! The Fed won’t totally abandon it’s fight on inflation but they need to be cautious. So for those that are thinking about buying, it could be a great time to find a new home!

Leslie Vanderwerf,  NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website

Written By

Currently a Senior Loan Officer at Cross Country Mortgage LLC, it's hard to believe I have been in the mortgage business for more than 25 years and have worked with Sharlene since 2000! I love sharing mortgage insights here each week and helping people finance their homes. Listening helps me find the right program for you!

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