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Home Mortgage Banks Are Strapped So Can Rates Get Any Lower?

Everyone knows our economy right now is unstable. The big question on everybody's mind is can mortgage rates get any lower? My answer is no. I don't see how interest rates can get any lower because of the simple fact that banks are not making money right now and they have not been making money for the last couple of years. Let's say for a moment that mortgage-backed securities get a huge pool of capital over the next couple of months. That will drive yields up and mortgage rates down right? Wrong! The banks that offer mortgage loans know they have to earn some kind of a premium on the origination of that loan, even if it is small.

This means bank will put a "floor" on how low mortgage rates will actually be. Put another way, we might have bonds that generate 3.0%, 30 year fixed-rate mortgages, but banks will put floors on those mortgages of say 4% and they'll add discount points to it. So in essence they are protecting themselves so they can still earn a very thin premium. So if you are waiting for mortgage rates to get lower before buying a house or refinancing the house who already live in, you are going to be waiting a very long time.


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September 12 2011 - Santa Rosa
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You should know Zillow will consider this post to be spam since you have a solicitation at the bottom of your article. 4% and discount points even if we rally in MBS? I doubt it. 
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September 12 2011

Do you really believe that or are you trying to create urgency that doesn't exist?

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September 12 2011
I agree that we'll never see a 3.0% 30 Year Fixed at par, and that rates are about as low as they'll ever go, but it's not because banks will put a floor on rates. The reason is, although mostly guaranteed today, MBS still has risk. The reason mortgage rates won't go much lower is because there is no reason for investors to buy bonds with ANY risk if they're essentially getting the same return as they are with no risk (Treasuries). There is a floor for MBS, but it's not an arbitrary floor put there by the banks, the market will set the floor.

Greg
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September 12 2011
If banks are lending at 4.25% and receiving great business they have no reason to go any lower. 
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September 12 2011
There's still a reason to go lower. It's called competition.
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September 12 2011
Exactly. Simply looking at pricing over the last 3 business days will show mortgage pricing is moving with the market. Using an example of 3% on a 30 yr is not realistic but the possibility of getting another point or 2 in premium is, should the market really tank. I just priced a loan comparing last Thur to today's pricing, .705 better so on a 400K loan that is $2820.
Andrew also nailed it, creating urgency. 
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September 12 2011
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I read something this weekend about the spread between the actual rate and the street rate being wider than it has been in the past by about .25%. As a consumer, it would be nice to access that rate, but I'm sure the banks want to hold onto that if they can to add to the bottom line. Any chance they'll give up the extra .25?
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September 12 2011

I don't know that the spread makes the interest rate a full .25% worse than it used to be but the price definitely is. Fannie/Freddie added an "Adverse Market Delivery" fee of 0.25% after the meltdown of 2008 (I think they added it in 2009) but the effect on the actual interest rate is from 0 - 0.125% at the most.

Greg

P.S. Some of the big banks' spread is higher by at least .25%, often times more, on the rate. But those are only the really BIG retail lenders and it is really nothing new. The easy way to avoid it is to avoid any bank that also accepts deposits when looking for who to use for your mortgage.

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September 12 2011
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I'm still convinced that 30 year fixed rates can go down to 3.0% under some specific circumstances, but then the 10 year treasury will probably be returning 1% yield, and the stock market will have really "crashed".  Though Congress and the Federal Reserve seem to want to keep mortgage interest rates as low as possible, it doesn't appear that either of them want the stock market to crash.

As always, the "money" comes from somewhere, even if it is just imaginary based on increased monetary supply due to artificial values or arbitrarily set Federal funds rates.

The real supply of "money" is "infinite", but the money allowed to be in circulation is always tightly controlled to minimize inflation and deflation.
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September 12 2011

Once, not so long ago, many said "wow, rates are at 5%, they will never go any lower..." 

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September 12 2011
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Median quote rate on ZMM for 30 yr fix dropped to 3.89% for the hour between 1:00 and 2:00 pm Pacific Daylight time today, which is lower than any time last week.  Median quoted rate peaked today between 2:00 AM and 3:00 AM at 4.39%, but that was only with a quote volume of 24 quotes, so it is not significant nor meaningful.
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September 12 2011
"so it is not significant nor meaningful."

Or truthful! (The quotes that is)
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September 12 2011
Profile picture for Pasadenan
The median quote rate for 30 yr fixed is at 3.89% again...

So, lower than last week.  (And I thought 3.91% in August was "good"...)

(Slow drift down, just as Paul stated; but with some typical market ups and downs).

Will it make 3⅞% and stay there for at least a day?
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September 13 2011
There is no justification for rates to be lower now than they were on August 11th. If people are quoting as such it's a lie, plain and simple. I have had 3 different people tell me that they got quotes from ZMM recently and when they went on the same day to inquire about it, they were told rates changed.     
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September 13 2011
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When the volume of quotes that the median is based on is in the 500+ range, the numbers are statistically significant.  Not all the loan officers "lie".  And by taking the median, you are getting rid of the bottom liars and the greedy at the top.  It still states nothing about fees though.

The ZMM trends track the market much better than other data sources; but one is better off using the median for the day rather than median for the hour.

Still, it is interesting to see the pattern changes in the robo-quoters with different news given out.  Some of the patterns reflect the rate sheets.  Others, just the need for writing loans or the loan officer's speculation on market changes.

The 3.89% median quote for 6 am to 7 am PDT is only based on 72 quotes, thus not statistically significant, but better than that very high median quote rate of 4.39% for one hour the previous day (based on only 24 quotes).

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September 13 2011
 
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Home Mortgage Banks Are Strapped So Can Rates Get Any Lower?
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September 13 2011 | 15 answers
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