Federal Reserve raised its interest rates by 75 basis points
and I feel that the business debt is going to be extremely expensive and the monthly installments on variable loans will be higher and a drain on cash flow. The biggest way that the higher rates may hurt small businesses is in the overall economic and market effect. Most economists feel that this way business owners will hurt less. They are divided on what’s to come: Some believe rates have already peaked; others say they’ll climb until or unless the nation’s economy officially enters a recession. According to Freddie Mac
, the housing market is still witnessing demand crumble even as borrowing costs have eased a bit of late.
The 30-year fixed rate mortgage slipped to 5.30% for the week ending July 28 from 5.54% in the week of 21st July. The 15-year fixed rate fell to 4.58% from 4.75%. The declines follow a dip in Treasury yields, which have pulled back amid growing fears of a recession.
The Fed rate hike will increase short-term rates like credit cards, auto loans, and home equity lines of credit, but also boost the interest rate on savings accounts. According to Wall Street, the Feds will start to cut down the rates again in March 2023
based on expectations for a much weaker economy.
One may wonder why the Feds’ decision on spiking the interest rates
directly impact long-term rates like mortgages. But it’s about the timing. See, the market is dynamic and keeps on changing every millisecond while the Fed meets like eight times a year. When they announce the change in rates, the market has already moved ahead, owing to their futuristic insights (there are groups devoted to predicting the trends). This hasn’t been the case, but in the era of transparency, especially when you hear the Fed leaders talk about the shift in rates to a 0.75% hike almost seven times in a year, the change is guaranteed.
Fannie Mae released its quarterly report last month
. The report shows that it remains severely undercapitalized, even as it reported solid earnings for the second quarter of 2022. It was $6.2 billion in 2018, and Fannie Mae’s net worth had seen a remarkable increase of about 810%. However, this year its net worth at the end of the second quarter was $56.4 billion, up nearly 19% from $47.4 billion at the end of 2021. It reported a second-quarter net income of $4.7 billion, up 6.8% from $4.4 billion in the first quarter but down 34.7% from $7.2 billion in the second quarter of last year.
The Detroit-based firm, Rocket Mortgage
has seen a major reversal in its net income, from $1.04 billion in the second quarter of 2021 to $60 million in the second quarter of 2022. Now, Rocket is focused on adapting its mortgage operations to the current market environment.
has decided to sell the nonbank mortgage servicer, Roundpoint Mortgage Servicing to Matrix Financial Services Corp. This comes after Freedom acquired Roundpoint two years ago. The purchase had increased Freedom’s combined owned and subserviced MSR portfolio to $310 billion. The forthcoming acquisition is an all-stock deal, with Matrix agreeing to pay a preliminary price equal to the tangible net book value of RoundPoint, plus a $10.5 million premium.
Amidst the rising interest rates, a glimmer of hope was seen, and President Biden’s
move to tackle the housing supply crisis was applauded by industry stalwarts. The government’s ‘Housing Supply Action Plan’, reported that they will increase the efforts for making the ARP’s funding to expand easier for the state, local, and tribal bodies. Last year NAR’s
commissioned landmark research report showed a lack of 5.5 million homes in the nation, a massive gap that would take years to bridge. The plan also framed a particular focus on building and preserving rental housing for low- and moderate-income families.
The Housing Trends Report created by the NAHB
Economics team to measure prospective home buyers’ perceptions about the availability and affordability of homes for sale in their markets, reported that first-time buyers retreat. Their share among all prospective buyers peaked at 65% in the 3rd quarter of 2021 but has now fallen for three straight quarters, to reach 59% - its lowest point in almost two years (56% in Q320).
Mortgage banks let go around 9,300 full-time employees in June and more than double in July according to the numbers released by the U.S. Bureau of Labor Statistics.
The reason for handing out the pink slips is the rising interest rates. Higher interest rates have hurt the refi market and hindered purchases forcing mortgage lenders to restructure their organizational structure.
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