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The Fed Funds Increases Will Likely Have a Minimal Impact on Mortgage Financing Interest Rates

Interest rate worries have for some time now influenced investment and loan decisions. According to the National Association of Home Builders however, residential mortgage loan interest rates should not be a major concern to home buyers. Wholesale alternative mortgage programs, non-QM mortgage lenders, non-qualified mortgage brokers, and non-prime home loan borrowers should continue to expect rates to stay steady going forward. According to the NAHB, this is because interest rates on residential mortgage loans should rise minimally, even with larger fed funds rate increases.

The fed funds rate tends to have a greater effect and consequence on shorter term loans compared to longer term mortgage loans. As non-QM residential lenders provide wholesale mortgage options generally as longer term alt-A mortgage loans, mortgage wholesale interest rates are likely less correlated with the fed funds rate than most people would expect. Top wholesale mortgage products provided by non-qualified mortgage lenders will likely see little in mortgage loan interest rate changes.

Instead, mortgage loan financing interest rates and wholesale mortgage financing rates are reportedly more correlated with long term growth and inflation. According to the Babson College, mortgage loan interest products tend to have interest rates more closely following 10-year Treasury notes than the Fed funds rate.

What does this mean for subprime residential lenders and residential mortgage originators looking to add wholesale mortgage financing options to their non-prime mortgage loan financing product lineup? Wholesale mortgage interest rates will likely remain close to present levels for the near future, allowing local mortgage brokers to add non-QM wholesale mortgage financing products with predictability and ease. Non-qualified mortgage wholesale products provide opportunity for licensed mortgage advisors looking to expand their business and product potential, reaching out to non-prime residential mortgage borrowers with wholesale alt-A mortgage lending solutions.

In 2006, the fed funds rate went from 1 percent, near where it is now, to 5.25 percent. Though this sounds like a drastic shift in the fed funds rate, mortgage loan financing rates hardly moved. Following the move, mortgage loan interest rates edged up less than half a percent. Even if the fed increases the fed funds rate in the near term, it will likely be much slower than the jump in 2006 under Alan Greenspan. Mortgage loan interest rates may not move much at all, bringing more opportunity for non-QM residential lenders and non-conforming mortgage originators.

The wholesale residential mortgage loan most susceptible to mortgage loan interest rate changes are wholesale ARM loans. Wholesale ARM loans, or wholesale adjustable rate mortgage loans, are linked with short-term interest rates and short-term debt. Most alternative mortgage loan applicants however pursue conventional 30-year fixed residential mortgage loans. Wholesale alternative mortgage origination products provided through non-prime mortgage lenders thus remain unaffected.

Wholesale mortgage loan originators taking advantage of a low fed funds rate, a strong housing market, and low interest rates for non-QM home buyers have only more to gain. Non-qualified wholesale mortgage providers should consider adding non-conforming wholesale mortgage loan programs from top alternative wholesale mortgage lenders to provide for non-prime mortgage borrowers.

Homeownership is expected to rise in 2016, in part due to a booming non-prime mortgage origination industry. The non-prime wholesale mortgage industry helps by pairing non-conforming mortgage applicants with non-qualified mortgage loans through alternative mortgage lenders. Even so, the best wholesale alternative mortgage lenders understand that there is some anxiety regarding near term interest rates on alternative mortgage loans. Angel Oak Mortgage Solutions and other top alternative wholesale mortgage lenders understand the concerns residential mortgage brokers and their clients have and work to help them make the best possible decisions across a range of alternative homeownership lending needs.