The Fed recently raised rates for the second time in 2018 and signaled that two additional rate hikes were expected before year-end. Committee members noted continued strength in the labor market, household spending and business investment, with a slight uptick in inflation. The Fed acknowledged that inflation is moving closer to the Fed’s stated 2% target.

Since the beginning of 2018, we have seen the 10-Year Treasury yield rise steadily from 2.46% at the beginning of the year to a high of 3.11% in mid-May. The 10-Year Treasury yield seems to have settled in the 2.89% to 2.96% range for the time being. A healthy yield curve will have a spread of 140 to 150 basis points between the 2-Year Treasury yield and the 10-Y Treasury yield. Right now, the spread is only 37 basis points. And additional rate hikes will likely cause the yield curve to flatten out even more.

In the first quarter, investors of Ginnie Mae project loans widened their spreads considerably in order to achieve higher coupons that are available to investors across other sectors.  Investor spreads have tightened slightly, but not enough to counteract a gradual rise in interest rates. The bottom line for our borrowers is that while we are experiencing some volatility out there, even though interest rates are considerably higher when compared to the last few years, interest rates for FHA insured mortgages are still lower than other long-term financing products. There continues to be a strong appetite for FHA insured mortgages wrapped with Ginnie Mae securities.

At Love Funding, we are in tune with the market movements throughout each business day in order to provide our borrowers with the information needed to lock their interest rate. As rates continue to rise, we have the ability to tap in to our large pool of investors in order to achieve a successful execution. We also have the ability to offer split interest rates on our construction/permanent products to help maximize proceeds when debt service constraints come in to play.