Mortgage Rates Fall

March 13, 2023

Mortgage Rates Fall

Mortgage rates fall after second largest bank failure in history.

In the wake of the second largest bank failure in U.S. history, mortgage rates are set to fall a lot for the first time in over a month as they pace the 10 Year Treasury note. Silicon Valley Bank, recently listed by Forbes as a top-20 bank in America, went into FDIC receivership last week after a liquidity crisis caused the bank to try and raise emergency funds. The news caused their stock to crash which then triggered a bank run before being taken over by regulators.   

News of the bank's failure rocked the market causing treasury yields to plummet as fears of a contagion spreading to other regional banks. Garry Tan, president and CEO of startup incubator Y Combinator, called SVB’s failure “an extinction level event for startups” that “will set startups and innovation back by 10 years or more.” Although the government stepped in to ensure depositors will be able to access their money first thing Monday morning, fears of a widespread impact are already being felt as First Republic stock is down 70% in pre-market trading. 

Attempting to calm the markets, Federal Reserve Chair Jerome Powell, Treasury Secretary Janet Yellen and FDIC Chair Martin Gruenberg issued a joint statement saying, "Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system," as the Treasury Department designated both SVB and Signature as systemic risks giving it authority to unwind both institutions in a way that it said “fully protects all depositors.”

The FDIC’s deposit insurance fund will be used to cover depositors, many of whom were uninsured due to the $250,000 cap on guaranteed deposits. Along with that move, the Federal Reserve also said it is creating a new Bank Term Funding Program aimed at safeguarding institutions affected by the market instability of the SVB failure.

Before this news hit, mortgage rates had steadily risen with broader rates for over a month, causing homeownership affordability to drop to record lows. Home buyers will benefit from this brief rate downturn and have the opportunity to lock in a lower rate on the heels of this current market uncertainty. It is advised that rates don't go in one direction forever; and that most of the time, after a steep drop, the 10 Year will slightly rebound afterwards. 

The next CPI report comes out tomorrow, which will have a big impact on what the Fed does to their benchmark rate at the next meeting. 

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