Rising Long-Term Rates Impact Credit Union Mortgage Activity

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 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.

 

 

 

Aug. 18, 2003


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