Now What?

Things have played out pretty much as we expected: The Affordable Healthcare Act (Obamacare) was implemented on schedule. Congress and the president were unable to reach a budget agreement, hence the federal government shutdown.

Actually, the federal government didn't really shut down. Roughly 30% of the civilian government workforce was simply furloughed. Most government departments continue to function. So “shutdown” isn't the right word; “cutback” is more like it.

Whatever we call it, the furloughs and cutbacks have impacted the mortgage market. Because many IRS employees were furloughed, it's taking lenders longer to verify reported income with the IRS. Without verification, it's impossible to sell mortgage loans on the secondary financial markets. This liquidity is vital to mortgage lending.

Needless to say, delays are proving frustrating to lender and borrower alike, especially in light of lower mortgage rates. In the past weeks, we've opined that interest rates would likely fall with the rise in uncertainty the budget impasse and new healthcare legislation imparts. That's been the case: the yield on the 10-year U.S. Treasury note – a bellwether for long-term mortgage rates – has fallen 15 basis points to below 2.60%.

In turn, mortgage rates have fallen. Our best estimate was that we'd see the rate on the 30-year fixed-rate loan vacillate between 4.25% and 4.50%. Depending on which survey you look at, we are either right or somewhat right.'s national survey puts the average rate at 4.41%, while Freddie Mac's survey puts it at 4.22%.

The frustration on our end is raised because borrowers are having a difficult time exploiting today's lower rates. To be sure, lower rates are a nice relief, but if you're unable to close on a low-rate loan in a timely manner, what's the point?

But don't give up.

Anyone looking to refinance a mortgage or purchase a house shouldn't delay the financing process. If they are concerned about rates rising, they should consider locking their rate for a longer period. Admittedly, rates could go lower, but they could also go higher – and go higher in a hurry should a budget deal be announced.

Of course, none of us knows when that will happen. But with the long-term impetus for rates to rise, the benefits of waiting to capture a significantly lower rate is more than offset by the risk of waiting and being faced with a much higher rate.

Courtesy of Jessica Regan.

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