Holy Heat Miser, Batman…it’s a meltdown!
Had you taken my advice this weekend, and immediately locked your mortgage rate yesterday, you would have lost out. The par rate for a 30-year fixed rate conforming loan was 5.625% yesterday- today that par rate is 5.5%. My advice would have cost you .125% in rate. Alas, my mortgage rates report is not about “catching the bottom” as much as it is about “avoiding the top”; it’s about mitigating market risk. From my explanation on the Zillow Mortgage Blog:
My approach is with an aversion to risk so I’m biased towards locking rather than floating a rate. What I do try to find is overreactions in the MBS market so that you won’t lock your mortgage rate at the top nor float your mortgage rate when higher rates are imminent. My customers RARELY catch the “bottom” but they miss out on many “tops” when locking their rate.
I look for irrational exuberance or irrational fear. If I think markets are being too optimistic, like this week, I advise customers to lock. The whipsaw reaction to irrational exuberance is irrational fear; a steep rise in mortgage rates. THAT is what I want to avoid.
Long-term, I feel that the government bailouts of financial institutions will result in a hefty price tag to the taxpayer, which is inflationary in nature. I look for markets to start reacting to this sooner rather than later.
If you have a definitive closing date for the purchase of your home, lock-in your mortgage rate today. If you’re shopping for a new home. locking your mortgage rate at contract acceptance is advisable. If you are one of the fortunate few with equity, good income, and good credit, and want to refinance your home loan, today looks better than next year.
I’d love to discuss your options with you.
PS: In my last report, a Texas mortgage broker suggested that my risk mitigation strategy is inferior to a “lock and pray “approach:
Bottomline, none of us knows what is going to happen, so the smartest course is to lock with a lender that will renegotiate your rate when we experience one of these rapid drops that occur with little advance notice.
I’ll agree that prescience is a virtue best reserved for the Divine. My faith in the predictability of mortgage lenders’ actions has been shaken over the last year. I’ve seen lenders flip programs to make an extra buck and back off approvals. While this gentleman’s strategy has proved superior to mine, this month, I still rely on my charts and research to execute low rates for my customers.
Originally posted on MIllionaireRealEstateLender.com
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Comments
5 Comments so far
Jennifer Monastero
Brian, I have experienced both the disappointment of NOT obtaining the ‘bottom’ rate for my client (having missed a few by .125% or so) and the gut-wrenching ’should have locked that rate!!!!’ regret when we lose what we had in our hands for a .25% JUMP. Guess which one hurts more? My advice has always been, if you like what you see- take it!. Squabbling over $400/year is not productive.
Right now, I still think floating is ok though… unless something’s closing in 15 days- then, of course, you MUST lock.
Greg
Brian,
Can you break your arm any moreso by patting yourself on the back?
My understanding of this blog was to educate the consumer and not to advertise your vast knowledge of Marketing yourself at the expense of Zillow.com.
America’s #1 Mortgage Broker (what a hoot for a name!) needs to stop bragging and start to inform.
Brian Brady
“The par rate for a 30-year fixed rate conforming loan was 5.625% yesterday- today that par rate is 5.5%. My advice would have cost you .125% in rate.”
Is an admission of fallibility interpreted as hubris to you, Sir?
Nic
That is quite some handle eh Greg? Would have to assume a nationwide Gallup poll was conducted to arrive at such a status.
Martin Farris
Brian,
I think you missed my point. Had your clients taken your advice and locked, then rates dropped, and you had them locked with a lender that offered a renegotiation feature, you could have renegotiated to the lower rate. I’m not sure how that equates to a “lock and pray” approach. The loans I have closing next week are closing with a rate .5% lower than where we originally locked. If I had locked with a lender that did not offer a rate renegotiation, then I would have been praying.