Last night, I speculated that mortgage rates would open in the 4.5% range because of the Fed’s post-market Press Release about its mortgage-backed securities market intervention:
Mortgage markets are responding with EXUBERANCE…joy…unbridled passion! In post-market trading, the 4% coupons are trading at a premium, suggesting that mortgage rates should open below 4.5% tomorrow.
That…didn’t quite happen. Mortgage-backed securities open higher, then fell off the table, then recovered, then fell again. Lenders offered wholesale par rates (with no yield spread premium) at 4.625% and 4.75%, today. My article moved over 20 people to call to find out about a potential refinance and most seemed frustrated that the 4.5% rate was not available, yet.
My hypothesis is that the mortgage traders were still on vacation, in Cabo, and didn’t see the Fed’s Press Release as sufficient cause to jump on a plane and get back to Wall Street. I still think we’ll see a 4.5% mortgage rate…next week. Here’s why most borowers will never get that rate for their refinance:
It won’t stay down at 4.5% for long. We saw this happen, for about three hours, about two weeks ago. Borrowers who “had it tee-ed up” got that rate, with a 1% origination fee. “Teeing it up” means you’re ready to lock your rate. Lender require the following to lock a mortgage rate:
- Credit report pulled
- Loan application completed and entered into the system.
- Documentation for income, and assets, ready to fax, email, or send via overnight mail.
Lenders are cracking down on lock commitments. The rate locks are coming with conditions, meaning that the loan file needs to be submitted to underwriting within ten business days. This means that a title report needs to be supplied (3-5 days) and an appraisal needs to be uploaded (7-8 days). That leaves very litle time for deliberation, if mortgage rates “just touch” 4.5%.
As such, deposits for appraisals, condominium certifications, and/or credit reports need to be supplied at rate lock commitment. What this means is that your originator will collect about 4 or 5 hundred bucks from you. I have no doubt that some of the originators who comment on my articles will try to “sell you” with the comment that “upfront fees are evil” or “take your time and decide”. Others will say that I’m using fear to intimidate you.
Okayfine. I’ve worked in financial services, both trading mortgage-backed securities and originating mortgages, since 1989. It is my professional advice that you need to be prepared if you choose to take advantage of this opportunity. These are unusual times with extraordinary benefits for the swift. Banks know that they hold the upper hand with these low mortgage rates; they’ll only reward the prepared.
Contact me if you have questions. The phone is the most efficient and reliable medium.
PS: The requirements to get this “magical rate” will be steep. You must have excellent credit, be refinancing the amount of the mortgage you had when you bought the home (meaning you didn’t take out any cash from the property), and have plebty of documentable income. If you don’t meet those steep criteria, don’t fret. While you may not qualify fnr that rate, you will still be offered an historical one.
PPS: If you contacted me today, I’m still digging out from under. I’ll be scanning and e-mailing promised documents on Friday.
PPPS: I almost forgot; Happy New Year !
Last 5 posts in Approval/Qualification Process
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Comments
9 Comments so far
Jennifer Monastero
Brian, I couldn’t disagree with you more. IF rates fall to 4.5%, which I do believe they will, in the coming days, they will stay there for quite some time. The government thinks that the only way to save the economy is to artificially lower mortgage rates, and buying up $500 BILLION in MBS is their magic pill for doing that. They are NOT going to sit idly by and watch as rates yo-yo between 4% and 6%, they are going to make sure that rates stay stable. Without stability, their $500 billion is wasted. Not to say the government has never wasted money before, but do you honestly believe this will be left up to the ‘free’ markets? No way. 4.5%, and we’ll see those rates for months. I think you are trying to create some sort of feeding frenzy, and that’s fine for business, but is it truly what consumers need to hear? I think not. Rates are heading lower, and they will stay there.
I wouldn’t say that you are using fear to intimidate anyone, you are just creating a sense of urgency that really doesn’t need to be there. Maybe that’s just the ’salesman’ in you. I know the one time I ’self-promoted’ on this blog, I felt dirty. This blog is supposed to be about sharing information, and giving good advice. Not self-promotion. Leave that to your other blogs.
Brian Brady
Jennifer, you just cost me five bucks. I bet it would take you until at least NOON (PST) to come here and start selling in my post.
“I know the one time I ’self-promoted’ on this blog, I felt dirty.”
Onlookers take note of this sales tactic Jennifer is using; its called the “non-sales” sales tactic. It’s commonly used in the comments’ sections of weblogs and is designed to refute credibility of the author. It’s usually about a 50/50 shot when it comes to rate predictions.
Moreover, what Jennifer’s doing here is trying to paint me as some sort of shyster…like this:
“I wouldn’t say that you are using fear to intimidate anyone, you are just creating a sense of urgency that really doesn’t need to be there”
There are three reasons why a sense of urgency is warranted:
1- As Jennifer pointed out, two weeks ago, you might lose your job:
http://www.zillow.com/blog/mortgage/2008/12/05/i-bought-my-house-at-45-too-bad-i-lost-my-job-the-next-day/
2- In a declining market, valuations can decline rapidly.
EG: In the 92057 zip code, foreclosure activity drive median prices down 10%, in the 4th quarter, for townhouses and condominiums. Many folks in that zip code are now ineligible for this money.
3- The mortgage industry has a supply problem; lenders are currently working AT CAPACITY for 30 day closings. Increased demand will lengthen processing/underwriting times, and require rate lock extensions. Lenders are now charging LOTS of money for those rate lock extensions. What this means to you is that you’ll get all of your documentation in, spend 25 days in underwriting, and be told that you have to pay an extra .375% to honor your rate lock, even though you did what was asked of you. Lenders hold the power right now and they can (and do) abuse you, at will.
“Maybe that’s just the ’salesman’ in you.”
the word salesman is highlighted in order to discredit my advice. Its a sophisticated use of the “straw man fallacy” and argumentam ad hominem. (He’s just a salesman and since I called him out on it it, I’m to be trusted).
Glad you showed up as soon as you did, Jennifer; I was dying to clarify my compulsion to point out the urgency of this development.
PS: Jennifer cites that the Fed is going to spend $500 billion, purchasing MBS. We trade about $2.5 trillion in MBS monthly. If the Fed is the ONLY bidder, at 4.5%, that money will be gone in…
…five days. That’s the pessimist in me.
Brian Brady
“…five days. That’s the pessimist in me.”
Bad math; five weeks is the correct answer
Tchaka
Brian,
I don’t know whether you are correct about rates or whether Jennifer is, but I will say these 3 things:
1. I’m not convinced that the govt can make rates go down a stay down. One conversation I had 3 days ago with an AE is that it’s possible some investors are keeping rates higher than they should be because their underwriters are overwhelmed. Very plausible and not at all related to what the govt is doing. At the same time, the govt is not pleased with the lack of trickle down despite the bailout and they may drop the hammer. No one knows what will happen.
2. I disagree with the notion that borrowers need to shell several hundred dollars upfront - it depends on the situation. Most of my clients (particularly repeat ones) are good trustworthy individuals whom I allow to settle at closing.
3. I do agree with the idea of being “tee’d up” or “Ready to go” (to borrow from our president-elect). I have a number of them in the ready position with a specific target rate and the moment I see that rate, I will move forward. More than once I’ve quoted rates only to see them change by the time I got in touch with them. Having them “ready to go” allows us to more easily reach our objective.
Happy New Year.
Brian Brady
“Ready to go”- Super phrase, Tchaka.
The 4.5% Inauguration Day is around the corner, folks; I just can’t pinpoint when. Be…”Ready to Go”
“Most of my clients (particularly repeat ones) are good trustworthy individuals whom I allow to settle at closing”
We pay our appraisers COD, Tchaka. That’s how we get such good service and close refinances in 14-21 days. While I trust most folks, I trust the fact that cash upfront gets the third-party service providers to give me priority service.
Brian Brady
Jennifer’s comment was deleted for ad hominem abuse comments.
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Andy
Brian, I think you are exactly right. If you find a loan that makes sense to you to must act fast to seize the moment. If rates go lower, then consider acting again. Even a lock is not the guarantee it once was when underwritting standards can change by the hour you lock means little if you can’t close the loan for other reasons, such as appraisals and other criteria. One a 4-unit 3 weeks ago with Wachovia I had to demonstrate a 18 month reserve equal to 18 months rent across all properties when just 2 weeks before it was 12 months: a form of escrow equivolent for property taxes,insurance, deposits and rents reserves. This meant that I had to ask for a gift of 50k from my mother to close that loan. If it wasn’t a gift then all the other numbers would be screwed up. Lock the best terms that work for you and close it as soon as possible.