Mortgage Rates Plummet to 6.26%, Lowest Since October Amid Fed Rate Cut.

The 30-year fixed mortgage rate has dropped to 6.26%, its lowest level since October. The decline comes after the Federal Reserve cut its short-term rates. However, mortgage rates tend to follow the longer-term 10-year Treasury yield, which may not necessarily lead to further decreases in mortgage rates.

The 30-year fixed mortgage rate has fallen to 6.26%, marking the lowest level since October 2024, according to data from FreddieMac's report. This decline comes on the heels of the Federal Reserve's recent 25-basis-point rate cut. The drop in mortgage rates has led to an increase in mortgage loan application volume and refinancing activity, as reported by the Mortgage Bankers Association (MBA).

The Federal Reserve's decision to lower its short-term rates is expected to have a cascading effect on long-term rates. However, mortgage rates are primarily influenced by the 10-year Treasury yield, which may not follow the Fed's short-term rate cuts directly. Despite the Fed's rate cut, the 10-year Treasury yield has been trending higher, potentially limiting further decreases in mortgage rates.

This favorable backdrop is poised to benefit mortgage REITs (mREITs). Stocks such as Ellington Financial (EFC), Annaly Capital Management (NLY), and Orchid Island Capital (ORC) are potential beneficiaries of rising origination and refinancing volumes. The Fed's guidance of two additional rate cuts by the end of 2025 suggests that mortgage rates are likely to decline further, which could drive book value growth and improve profitability for mREITs.

Ellington Financial, with its diversified portfolio of residential and commercial mortgage loans and mortgage-backed securities, is well-positioned to benefit from the current trends. The company's focus on commercial mortgage bridge loans, proprietary reverse mortgages, and closed-end second lien loans has contributed to stable growth and income.

Annaly Capital Management, with its diversified investment strategy spanning residential credit, mortgage servicing rights (MSRs), and Agency mortgage-backed securities (MBS), is also positioned to gain from the lower mortgage rates. The company's balance of Agency MBS with MSRs enhances yield and mitigates risks, positioning it for stable long-term performance across rate cycles.

Orchid Island Capital, which maintains its focus on Agency residential mortgage-backed securities (RMBS), is expected to profit from favorable trends in the market. The company's strategy of investing in traditional pass-through Agency RMBS and structured Agency RMBS is likely to yield attractive returns.

In conclusion, while the Federal Reserve's rate cut has contributed to a decline in mortgage rates, the 10-year Treasury yield remains a key factor in determining mortgage rates. The current environment presents an opportunity for mREITs to benefit from increasing origination and refinancing volumes, as well as potential further declines in mortgage rates.