This week saw the worst day for Wall Street since 1987 and trillions of dollars of stimulus being pumped into the economy, leaving investors and Americans wondering what twist would be around the next turn.

The continued fear of the spread of coronavirus COVID-19 has led to extensive economic fallout, which is likely just beginning. Sunday's announcement by the Federal Reserve that it was dropping the federal funds rate down to 0% sent shockwaves through the mortgage industry because of what was different. The Fed is now in the middle of buying $200 billion worth of mortgage-backed securities, and you can likely expect that number to increase. 

The Fed's purchasing spree briefly caused mortgage rates to drop, which was a welcome relief after long-term rates shot up at the end of last week. That relief was short-lived, however, as mortgage rates jumped right back up mid-week. That happened because, right now, the Fed is the only buyer of mortgage-backed securities. Your regular buyers of Mortgage Bankers Association (MBS) have stopped (think banks, money managers, etc.) because they are trying to hold onto their cash. These groups are actively selling MBS to increase cash flow, causing spreads to widen and rates to move up.

This is why we say you can “generally” follow the 10-year Treasury note yield to get a picture of what's happening with mortgage rates. On the surface, you can see the yield jumped from a low of 0.35% recently to 1.25% this week. That indicates a surge in mortgage rates. But that is just a small part of the picture. This is why it is imperative to talk to a Movement Mortgage loan officer about what's happening with the market so you can get the best possible rate at the best possible time. 

Sam Khater, Freddie Mac's chief economist, doesn't expect this rate increase to be a long-term thing, saying “Mortgage rates rose again this week as lenders increased prices to help manage skyrocketing refinance demand. This is expected to be a short-term phenomenon as lenders work through their backlog.” 

As you might expect, the Mortgage Bankers Association's data showed that mortgage applications were down 8.4% from the week prior. The refinance market was also down 10% week-over-week, but was up a whopping 402% year-over-year. The MBA's chief economist Joel Kan pointed to the obvious culprit for the volatile swings in mortgage applications.

“The ongoing situation around the coronavirus led to further stress in the financial markets late last week, with unprecedented volatility and widening spreads,” says Kan. “This drove mortgage rates back up to their highest levels since mid-February and led to a 10% decrease in refinance applications. However, refinance activity remains very high. Excluding the spike two weeks ago, the index remained at its highest level since October 2012, and refinancing accounted for almost 75 percent of all applications.”

Kan continued, "Amidst these challenging times, the savings that households can gain from refinancing will help bolster their own financial circumstances and support the broader economy."

Throughout the week we have seen multiple headlines regarding government economic stimulus, both domestic and global, in an effort to stabilize markets and calm fears. The latest proposal from the U.S. government would give each American $1,200 to help tide them over as businesses are shuttered to prevent the spread of COVID-19. 

New data this week is starting to reflect what's happening in the economy. Weekly jobless claims jumped up significantly to 281,000, according to the Labor Department's survey. That's the highest total since September, 2017. That number is expected to keep increasing as companies continue to furlough employees and governments mandate shutdowns.