Another factor that affects mortgage rates is availability of credit.
Based on macroeconomic conditions like prevailing unemployment levels, mortgage lenders may project an elevated risk of credit default.
In anticipation of higher rate of credit default, lenders may tighten their underwriting guidelines. They might outright stop offering specific mortgage programs like Jumbo Loans or FHA mortgages, or price themselves out of the market, i.e. setting outrageously high rates for specific products.
Recall that so long as all usury limits and anti-discriminatory laws are followed, mortgage lenders are well within their rights to set underwriting guidelines for their specific mortgage products and change the cost of their offered product any day.
Other Factors Impacting Mortgage Rates
Another important factor impacting rates is processing capacity constraints at mortgage lenders.
When lenders are capacity constrained because of too many applications to review in their system, they may be simply unable to process enough application in time, and may opt to raise interest rates.
Note that mortgage lenders are free to set any rate they like within usury limits, so long as they are in full compliance with the Equal Credit Opportunity Act and are not discriminating against a borrower.
As a reason, on any given day, different lenders actually price the risk of a given borrower and a given property very differently. The rates offered by different lenders to a borrower vary significantly.
This is in part driven by strategic interests of mortgage lenders and also their current lending portfolio. Lender’s freedom to set arbitrary rates within usury limits impacts borrowers significantly and makes shopping for mortgage rates a key step for mortgage seekers.