Mortgage rates fall in wake of bank failures

What two banks recently failed?

Last week, the federal government took over Silicon Valley Bank, which endured a $1.8 billion after-tax loss before its collapse. Signature Bank failed under the weight of its cryptocurrency ties.

Rebecca Richardson, a Charlotte, NC-based mortgage loan originator with UMortgage, addressed the matter. The self-described “mortgage mentor” sought to assuage fears the bank failures development was comparable to the Great Recession of 2008.

“Are you a little spooked from the bank failures?” she asked. “Is it feeling a little too 2008 for you?” she added before explaining why mortgage rates have not dropped as much on the bad financial news in the banking industry. She referenced the Great Recession, when mortgage-backed securities nearly wrecked the economy.

“Now for background: Mortgage rates are based off of bonds mortgage-backed securities to be exact,” Richardson said. “And typically when there is bad economic data or the market isn’t doing so well, bonds will do well. So bonds will go up, rates will go down. And that’s why during recession, rates typically go down on mortgages.

“Now what has happened with these bank failures is kind of the epitome of negative economic news, or market chaos. And while that typically helps mortgage rates, you get to the point of diminishing returns is and it stops helping mortgage rates.”