Hi Reader,

The average 30-year fixed mortgage rate ended the week at 6.89%, up from 6.81% the prior week, according to Mortgage News Daily. Freddie Mac’s weekly average also increased, to 6.71% from 6.66%.

While this rise is frustrating, it is best understood by breaking the last 6 months down into three periods. As seen in the above chart as A, B and C.

A. First spike and partial retreat. In March and April we saw extreme volatility in mortgage rates as the global markets ping ponged between seeing the Iran/U.S. war as short term or not.

B. Elevated becomes persistent. In May we got the second elevated inflation report, and the markets settled in to the consensus that the war might be ongoing.

C. Renewed inflation pressure + stronger economic data. Energy prices moved higher again, while stronger economic and labor data increased the risk that the Fed would need to keep policy tighter, or even raise rates.

This past week

The biggest surprise came Friday, when the August jobs report was dramatically stronger than expected.

​The U.S. added 162,000 jobs, roughly three times the 53,000 economists surveyed by The Wall Street Journal had expected. July’s employment numbers were also revised higher.

Why does that matter for mortgage rates?

Because a strong labor market gives the Federal Reserve more room to keep monetary policy tight, or even raise rates further, if inflation remains a problem.

After the jobs report, market expectations for a September Fed rate increase jumped. The 10-year Treasury yield, which has a strong influence on mortgage rates, moved as high as 4.802% before settling back somewhat later in the day.

But jobs weren't the only thing pushing bond yields higher.

Earlier in the week, rising oil prices brought inflation concerns back to the forefront. The conflict involving the U.S. and Iran helped push crude above $90. Today, crude is at $97. At the same time, investors are concerned about large government debt loads and heavy borrowing, along with substantial corporate debt issuance from U.S. technology companies.

What happens next?

​Wage increases in the jobs report were relatively soft, and the next round of inflation data could still materially change expectations for what the Fed does next.

Just today, UBS analysts forecasted that the Federal Reserve will raise interest rates by 25 ​basis points each in September and December.

Are mortgage standards too tight?

There is also an interesting debate developing around who can qualify for a mortgage in the first place.

A new report from the Pew Charitable Trusts argues that lending standards may have swung too far in the conservative direction after the 2008 financial crisis.

The average credit score among borrowers who successfully obtained a mortgage was 695 in 2006. By 2024, it had climbed to 742, while the share of mortgages going to borrowers with credit scores in the 600s fell substantially.

Pew's argument isn't that we should return to the no-documentation lending of the pre-2008 era. Instead, it argues that the industry may be excluding borrowers who could reasonably handle a mortgage and that alternative measures, including looking at someone's actual cash flow rather than relying as heavily on a traditional credit score, could expand access responsibly.

That's why I like being a mortgage broker. I can place people in great mortgage products like bank statement mortgages or P/L mortgages that give buyers more flexibility.

And no, you do not need a 742 credit score to get a mortgage! I have a buyer right now I'm doing a VA loan for who has a 550 score.

If you have clients with credit scores they are worried about, send them my way and I can see if I can find a great path forward for them.

When the right house needs work

Sometimes the property your client wants to buy also needs renovation.

There are a number of ways to finance that work. In some cases, renovation financing can be incorporated into the mortgage itself. In others, buyers may plan to use financing outside of the mortgage.

Either way, it is important that they run the strategy by their mortgage professional before taking on new financing.

Outside financing creates a new monthly obligation, which can affect a borrower’s debt-to-income ratio and potentially derail a mortgage approval before closing.

So whether your client needs renovation financing built into their loan or is managing outside financing separately, I can help them structure the pieces so the purchase stays on track, the transaction closes, and the financing still supports what they ultimately want to accomplish with the property.

I also do investor financing, so if you have clients buying rental or investment properties, feel free to send those scenarios my way as well.

I hope your week is off to a great start!

-Nicole

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Nicole Hamilton Bernheimer | NMLS #2354049

nicole@homeownering.com, 917-650-0167

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