Mortgage News

Trillion Dollar Banking Loss Is Driving Mortgage Rates Higher

October 22, 2024

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Banking Crisis and Its Impact on the Mortgage Industry: What You Need to Know

The Trillion-Dollar Banking Loss

According to the Federal Deposit Insurance Corporation’s latest quarterly report, U.S. banks are facing unprecedented challenges. The Federal Reserve’s aggressive interest rate hikes have led to staggering unrealized losses on investment securities – reaching $515 billion in the most recent quarter. While this represents a slight improvement from previous quarters where losses exceeded $600 billion, the cumulative loss over the past six months has surpassed the trillion-dollar mark.

How This Affects the Mortgage Market

Understanding the impact of these losses requires knowing how mortgage loans work in the market:

  1. The Mortgage Pipeline
    • Lenders originate loans to borrowers
    • Funding typically comes through correspondent lines or wholesalers
    • Loans are sold on the secondary mortgage market
    • These loans are bundled into mortgage-backed securities (MBS)
    • MBS are sold to institutional investors (pension funds, insurance companies)
  2. The Big Bank Connection
    • Most mortgage loans in the country are funded through major banks
    • These banks determine daily origination values
    • Recent losses are leading to increased margins on mortgage loans
    • Banks are trying to recoup their trillion-dollar losses
    • This directly impacts the rates showing up on rate sheets

Market Analysis: Home Price to Income Ratios

An interesting trend emerges when looking at home affordability in major U.S. cities:

  • California dominates the unaffordability index, claiming 6 of the top 8 spots
  • Only New York and Miami break California’s stronghold
  • Most affected California cities include:
    • Oakland
    • San Jose
    • San Francisco
    • Los Angeles
    • Long Beach
    • San Diego

Veterans and Home Buying: A Bright Spot

Recent surveys indicate veterans are showing stronger intentions to purchase homes in the coming year compared to civilian buyers. This presents an opportunity for industry professionals:

Action Items for Industry Professionals:

  1. For Loan Officers:
    • Master VA loan requirements
    • Stay updated on VA loan processes
    • Be prepared to educate clients
  2. For Realtors:
    • Understand VA loan benefits
    • Combat misconceptions about VA loans
    • Learn how VA loans can benefit both buyers and sellers

Looking Forward

While the banking sector faces significant challenges, understanding these market dynamics helps industry professionals better serve their clients. The key is staying informed and adapting to changing conditions while looking for opportunities in specific market segments like VA loans.

For more information or specific questions about VA loans, reach out to your industry partners or visit mortgageshots.com. Email us at: mail@mortgageshots.com or simply use the chat function in the lower right corner of this page.