Average Person Versus Wall Street: Homeowners Affected By Investors

By TYRONE TOWNSEND

The average person is feeling the effects of inflation along with rising interest rates and some experts say that can be traced back to investors on Wall Street.

Freddie Mac reported on Thursday that mortgage rates continue to rise, up to an average of 3.56% from 3.45%.

The 30-year fixed-rate mortgage averaged 3.56%. A year ago at this time, the 30-year average was 2.77%, according to Freddie’s Primary Mortgage Market Survey.

Anthony Green is a Richmond Hill, Georgia, resident and Army veteran who says he refinanced at a good time. He purchased his home in 2004 at the price of $204,000 at a 6.25% interest rate with a monthly payment of $1,650.

“Five years later, I refinanced, and the interest rate lowered to 3.75%, and my monthly payment was $1,250,” Green told The Mortgage Note. “In 2020, I refinanced for a 2.8% interest rate, my monthly payment stayed the same, and I received a check for $67,000. Now my home is valued at $335,000.” 

What is going on?

Lenders require money to provide new loans. They’ll bundle their loans and sell mortgage-backed securities – also known as mortgage bonds – to investors on the secondary market to free up funds. They’re seen as less risky investments that yield better returns than the stock market.

Investors have recently been more bullish about the economy, so they’re withdrawing money out of bonds and putting it back into the stock market in search of more significant returns.

Since mortgage rates generally move in the opposite direction of bond prices when investors sell bonds, rates rise, says George Ratiu, manager of economic research at Realtor.com.

How are mortgage lenders affected?

Wells Fargo managed to outperform Wall Street’s expectations with its fourth-quarter results. Sales for the quarter totaled $20.86 billion, exceeding Wall Street’s expectations of $18.8 billion.

Management at Wells Fargo reported $9.26 billion in net interest revenue for the quarter, down slightly from the previous year, but they expect to rebound this year as long-term loan rates continue to rise significantly.

Rocket Mortgage, the nation’s largest mortgage lender and part of the Rocket Companies faced problems in the third quarter of 2021. Their revenue fell 32% to $3.11 billion, while net income declined 53% to $1.39 billion. 

Rocket Mortgage’s closed loan origination volume was down slightly to around $88 billion. Less profitable purchase loans constituted a more significant portion of its assets, costing Rocket considerable profitability — with its gain on sale margin declining from 4.52% to 3.05%.

With interest rates rising, housing price increases are expected to slow down.

The National Association of Realtors predicts housing prices will climb 5.7% in 2022, while Realtor.com says it’s more like a 2.9% rise.

Email story ideas to Editor Kimberley Haas: [email protected]