June mortgage rates forecast
I predict that mortgage rates will go up in June, by less than a quarter of a percentage point. The month started with the 30-year fixed-rate mortgage averaging 3.03%, so my forecast calls for the 30-year to end the month at 3.28% or less.
Most of the increase will happen in the last half of the month, after the June 15-16 meeting of the Federal Reserve's monetary policy committee. The Fed is likely to acknowledge the inevitable: that 2021 may be the year when it starts pulling back from its easy-money policies.
Trying to avoid a ‘taper tantrum’
The Fed has already been reminding everyone that it will begin tightening someday, so that a change in policy shouldn’t come as a shock to the system. If bond investors overreact anyway, their outburst will manifest itself as a reluctance to buy mortgage bonds. By turning up their noses at mortgage bonds, they would put upward pressure on mortgage rates.
The central bank found itself at a similar crossroads eight years ago. At that time, the Fed had been doing what it's doing now: buying mortgage bonds to hold down rates and keep mortgage money flowing. In a news conference after the June 2013 monetary policy meeting, then-Fed chair Ben Bernanke said "it would be appropriate" to begin tapering its monthly purchases of mortgage bonds later that year.
The bond market's unruly reaction became known as the "taper tantrum." Bond yields abruptly went up, followed by mortgage rates. The Fed wants to prevent a recurrence. If it succeeds, bond investors will merely pout.
What happened in May
At the beginning of May, I predicted that mortgage rates wouldn't change much during the month. I said the rate on the 30-year mortgage would go up and down a little day to day but would remain between 2.875% and 3.25%.
That prediction was mostly correct. The rate on the 30-year fixed-rate mortgage averaged 2.94% APR in May, compared with 2.97% in April. On several days, the 30-year slipped below 2.875%, which I hadn't predicted.
Lower-income borrowers get refi help
The pandemic's economic effects have hit Americans unequally. On one side, you have people who could work from home, were well-paid and avoided lengthy interruptions in income. On the other side, less-well-paid people were more likely to have jobs they couldn't do at home, and they lost income when businesses closed due to social distancing.
When mortgage rates dropped through much of 2020, many prosperous homeowners refinanced their mortgages. They were able to qualify for new loans because they had kept their jobs, allowing them to pay their bills on time and maintain good credit records.
Lower-income homeowners didn't fare as well. More than 2 million didn't refinance, despite low rates, according to Mark Calabria, director of the Federal Housing Finance Agency.
The agency directed Fannie Mae and Freddie Mac to come up with refinance options for lower-income homeowners. Fannie's program, called RefiNow, is scheduled to begin June 5. Freddie's program, Refi Possible, will roll out beginning Aug. 30.
These programs will pay up to $500 for an appraisal and waive the adverse market refinance fee that acts as a half-a-percent sales tax on refinancing a mortgage.
To be eligible, borrowers must make 80% or less of the area median income, live in their own single-family home, have no missed payments in the past six months, and reduce the interest rate by at least half a percentage point. The mortgage must be backed by Fannie or Freddie, and the borrower's credit score must be 620 or higher. Other eligibility restrictions apply.
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