Mortgage Rates Fall for a Third Week

The average U.S. 30-year fixed mortgage rate fell to 7.18% this week from 7.24% a week earlier, according to Freddie Mac’s Thursday release. That makes three consecutive declines from 7.40% in mid-October. The benchmark still sits almost a full percentage point above its level a year ago, so the recent easing gives buyers a little more room in their budgets while monthly payments remain expensive.

On a $400,000 loan over 30 years, the latest weekly move trims principal and interest by about $16 a month, before taxes and insurance. The cumulative move since mid-October saves about $60 a month on the same loan. A buyer already close to qualifying might find that helpful, but the weekly change by itself gives us little reason to expect a rush of applications or closings.

For mortgage businesses in the Fly High universe, the first place that relief could show up in earnings is in loan originations. Lenders that sell newly funded mortgages can earn more if the number of completed loans rises and they keep a similar profit on each sale. A more competitive market can shrink that profit, so the number of loans that actually close and the earnings per loan matter more than an increase in applications alone.

Mortgage servicing has a different exposure. Servicers collect payments and earn fees while the underlying loans remain outstanding. If rates fall far enough for more borrowers to refinance, those loans can pay off sooner and the associated fees end earlier. The same lender can write more new loans and lose some expected fee income from loans it already services. With the average still above 7%, borrowers who locked in much cheaper mortgages have little reason to refinance at today’s rate.

Our read is that three weeks of easing make the origination outlook a little better, particularly for purchase loans where buyers were already close to making the numbers work. We would look for more funded loans at steady profit per loan, alongside stable servicing income. Those are the results that could put more recurring earnings behind dividends. This week’s rate move makes that outcome more plausible, while the payment math suggests the improvement will be gradual if it comes.

Sources

• Freddie Mac Primary Mortgage Market Survey, published by FRED
• Associated Press, November 5 mortgage-rate report

This article is general information, not personalized investment advice. Fly High Investing may hold securities discussed in this article.