The Fed met last Tuesday and announced that they planned to keep
the overnight Fed Funds rate low for a considerable amount of time.
However, the risk of rising interest rates is still apparent. Markets,
not the Fed, determine the price, and therefore the yield, on longer-term
bonds. As such, July resulted in the largest increase, in terms
of percentage, in yield on the 10-year Treasury note since 1987.
The 10-year note is the primary instrument used in determining
mortgage rates and an increase will have a substantial impact on
mortgage activity, especially the refinancing market. As rates declined
over the last two years, mortgage originations spiked. The majority
of these originations were refinances, which accelerates the speed
at which mortgages are paid off. Furthermore, with rates at such
a low level, credit unions sold mortgage balances off their books
at a record pace.
Based on an early sample* of credit union second quarter data,
it appears that mortgage originations grew approximately 50% over
YTD figures a year ago. More astonishing, the amount of mortgages
sold on the secondary market grew approximately 90% year over year
- and 2002 was a record year for originations and sales.