Ready...Remember this phrase: Mortgage rates are at 5.00% with 0 points on a perfect loan, and on any given day they can and will shift a Quarter Percent either way. Got that, No Miracles, No 4.00% No Rates are Plummeting!!!!
Once again, the news media gets a hold of a piece of information and runs with it. This past week it was mortgage rates will be at 4.00% for a 30 year fixed. This is part of a bill that was going to be reviewed this week in Government, just an idea from some crazy politician who does not understand the general dynamics of the economy. Why not just print more money and give it away, this would actually be cheaper!
Here is a fun little stat: Did you know if you were able to spend 1 million dollars per day, it would take over 2000 years in order for you to spend the amount of money set aside for the upcoming new stimulus plan?!
Do you know what this takes to accomplish lowering rates? How much money actually would have to be injected to the economy in order to stimulate it? Currently mortgage rates are at 4.875%, that's 87.5 basis points above 4.00%. The government would invest billions into mortgage back securities or Fannie Mae and Freddie Mac to push these rates down. Only to have a 5-7% increase in new home sales. This is not a wise investment for the government at this time, or I should say it will cause more harm than good.
Okay, a little more technical. In a previous blog I reported of the injection of funds into the mortgage back securities over the next 6 months and how this would drive or at least keep rates down for the moment. Well this is still true but the treasury shifted their policy a little, surprise surprise! Instead of purchasing the 4.00% and 4.5% Fannie Mae coupons (these are the coupons that set the rates for around 5.00% mortgage rate, coupon plus margin equals mortgage rate). The treasury has now found it to be profitable to buy the coupons that are at 5.5% and 6.00%. These would equal mortgage rates around 6.00% and higher, the anticipation that consumers that are in this mortgage rate range will be refinancing soon and this would create the opportunity to make a quick buck for the Government. Good for the government, bad for mortgage rates!
It is a good idea and will make money, it just will not bring down mortgage rates anytime soon!
The other issue at hand is the lenders and banks current portfolio of business. Lenders are overwhelmed with volume right now. Think of all the consumers that locked into 4.875% to 5.125% over the last 30 days, no bank in there right mind would offer a lower rate until all these loans have closed and have left the building, you hear me Elvis.
The cost to process, fund and service a loan takes months upon months for the lender to make back its money. If you come in January and then refi again in April, the "bank" will go broke. So for now, banks and lenders will keep rates up little until they can clear these enormous pipelines they are carrying. Then for about 5 minutes, we might see a rate in the 4's again.
Oh yeah, did I tell you the lenders are short staffed right now, so what used to take hours or even days, now takes days or even weeks. The masses that left the industry over a year ago are long gone and not many people want to come back for temporary job in the mortgage industry, especially when they are just going to get abused from loan officers and the higher ups.
My advice, find a loan officer who you trust, get your information in the system so you at least have a shot at these some low rates when they come down. Remember, they only come down for a moment. If only takes a few hours for a lender to take enough loans that will occupy their time for a month. If you are not in process, you will not even have a chance and you will be hearing about how the rate was at 4.75% on the 7:00 o'clock news or at 3:00am from CNN who are always a day late on the important news.
Please read some of the previous Blogs, you may find them helpful when sharing news with clients and friends. It will also help manage expectations of the markets and what is really going on.
Have a question, call or email anytime. After 18 years, I still actually love what I do and would love to chat!
Bill Nickerson
Providing Mortgages Since 1991
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