In this latest edition of The Mortgage Minute, we’re breaking down the latest market movements, including the Federal Reserve’s decision to hold rates steady and what that means for you.
Plus, we’ll dig into key economic data – GDP, consumer sentiment, and inflation – and how they shape the lending landscape.
But that’s not all!
This week’s Pipeline Save of the Week highlights a near-miss mortgage disaster (thanks to skyrocketing homeowners insurance) and the quick thinking that saved the deal.
Finally, we’re looking at how spreads are quietly shifting behind the scenes – and why that could mean big things for rates in the near future.
Let’s dive in.
Market Sentiment & Economic Calendar
It’s been a busy week for financial markets, with significant economic data releases and central bank meetings influencing market sentiment.
While market uncertainty remains as we wait to see how tariffs impact consumer prices, the Federal Reserve's recent decision to hold interest rates steady, along with the latest release of fourth-quarter GDP data, provides a clearer view of the economy’s trajectory.
What to Watch:
Monday, January 27:
New Residential Sales (December): The U.S. Census Bureau reported that new home sales increased by 3.6% in December, indicating buyers are still committed, even in this higher rate environment.
Wednesday, January 29:
Federal Reserve Meeting: The Federal Open Market Committee (FOMC) announced its decision to keep the federal funds rate unchanged, citing a strong labor market and moderate economic growth. Fed Chair Jerome Powell’s remarks highlighted a continued focus on the stabilization of inflation, before making other rate decisions.
Thursday, January 30:
Gross Domestic Product (GDP) Q4 2024: The Bureau of Economic Analysis released its advance estimate, showing that the economy grew at an annual rate of 2.3% in the fourth quarter, aligning with market expectations.
Friday, January 31:
Personal Consumption Expenditures (PCE) Price Index (December): The Core PCE index, the Federal Reserve's preferred inflation gauge, as expected, came in at a 0.2% month-over-month increase.
Consumer Sentiment Index (January): The University of Michigan released its final consumer sentiment reading for January, showing a slight uptick, reflecting consumer confidence in the economy.
The combination of steady economic growth and the Federal Reserve's decision to hold interest rates suggests a cautiously optimistic outlook.
With the Fed confirming expectations and signaling a wait-and-see approach, now is the time to reach out to fence-sitters who have been waiting for lower rates. A house they may have their eye on isn’t going to wait for them forever.
Pipeline Save of the Week
The Homeowners Insurance Rescue
Unless you’ve been living under a rock the past few years, you’ve most likely encountered a scenario where homeowners insurance (HOI) skyrockets in certain locations throughout the country, surprising unsuspecting homeowners with a nasty bill. The recent California fires have brought these risks into an even sharper focus.
And in this week’s Pipeline Save, we’ve got a nearly derailed deal—all thanks to a surprise HOI bombshell.
This deal was just days away from closing and everything seemed perfect. The loan was fully underwritten, the borrower was packing boxes and practically backing up the moving van into the driveway.
Their dream home was within reach and finally becoming a reality.
And just when everything seemed perfect, everything nearly came crashing down.
The HOI quote came in at nearly DOUBLE what had been originally estimated. Turns out, this property was in a high-risk fire zone, and a major bump in premiums were just issued.
The borrower’s debt-to-income (DTI) ratio shot through the roof, putting the deal at risk and that moving van idling and empty.
But the loan officer knew they couldn’t let the deal fall apart at the last minute. It was time for their secret weapon: a trusted relationship with a local insurance broker who specialized in budget-friendly policies.
With a quick phone call, they explained the situation and the need for a low-cost HOI policy. They secured a compliant policy that slashed the premium, dramatically reducing the DTI and putting the loan back in line for approval.
Within hours the deal was once again approved through underwriting, and the client was back to the most important thing a borrower should have to worry about when moving—how to get their couch down the stairwell.
Here’s the reality: homeowners insurance is no longer an afterthought. It’s becoming one of the biggest deal-killers in high-risk markets. We’ve seen policies that cost $3,500 a year in one neighborhood, and then you drive a block or two over and that same coverage from the same provider skyrockets to $15,000! Doing your due diligence ahead of time is key in this ever changing landscape.
Building a network of trusted partners can be a lifesaver in this business, and the difference between saving a deal and watching it slip through your fingers. A relationship with a few local insurance brokers who can issue time-sensitive quotes on your pre-approvals can be the difference between a firm deal ready to close and one that exists perpetually on a shaky foundation.
Now, a lot of times, clients like to default to their own insurance carrier for homeowners insurance so they can take the benefit of having multiple policy lines for better rates. But increasingly, we are finding that we can procure lower-cost insurance for them when we go through our own channels.
Be sure to prep your clients so they aren’t blindsided in escrow with a surprise homeowners insurance bill that’s triple what they were expecting. Letting them know early in the process that they may not get to stay with their own insurance provider will make things easier down the road.
It’s important that you do not default to waiting for escrow to handle the insurance, and don’t assume default apps and websites that pre-fill the rates for you are going to be accurate. Work directly with your borrowers to secure their HOI as soon as escrow opens. It’s a simple step that can keep last-minute surprises at bay.
Reminder to send in your Pipeline Saves of the Week to team@mortgageminutenews.com to be featured in future newsletters!
Mind the (Spread) Gap
On Wednesday, the Federal Reserve left interest rates unchanged, holding at a range of 4.25% to 4.5%. This was widely expected by market analysts, as employment and inflation data seem to be their main point of focus. And, even though it was disappointing for mortgage professionals hoping for a rate drop, it also served as a reminder that things can move quickly even when they feel stagnant.
It wasn’t that long ago that mortgage rates were running wild, hitting higher and higher numbers we hadn’t seen in quite some time. Borrowers went into hiding. Deals stalled. The market felt frozen in place.
But here’s the thing: In this business, nothing stays the same for long.
Mortgage rates in the late 70s and early 80s were in the teens. (And we’re not talking about some kind of weird third lien home equity loan. FIRST mortgage rates!)
A few years ago, as many of us so fondly remember, rates were sub 4% for a lot of qualified homebuyers.
Do you know what was the constant through all of those highs and lows? Americans kept buying homes.
In this industry, you have to look for advantages around every corner.
And the latest advantage? Spreads.
As this latest HousingWire article highlights, spreads – or, the extra risk premium lenders bake into their rates – have been quietly improving. These kind of “in the weeds” stats don’t always make for flashy headlines, but they can matter in a big way for mortgage rates. Because of spreads, even if the 30-year UMBS (Uniform Mortgage-Backed Security) makes a big move higher, it doesn’t always mean mortgage rates will follow.
And when those spread improvements start truly normalizing industry-wide to their typical levels? That’s when rates can really move in a meaningful way, even if markets don’t.
The new administration seems hungry for rates to drop even if the Fed isn’t, and they’ve already indicated that they have a few tools in their toolbag to go it alone.
That means one thing for you: volume is coming. Industry leaders aren’t just waiting, they’re lining up their borrowers now so when the market shifts, they’re ready to lock and close.
Keep watching those spreads, stay ahead of the curve, and get your systems in place. It’s so important to set strong foundations now so that you’re ready to handle volume when it comes…because it is coming! When those floodgates open, hesitation will no longer be an option, and it’ll cost you big!
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