Greed.....for lack of better word is Good?

An iconic phrase from the 80's. It landed Ivan Boesky in jail after the 1980's investment guru let greed take him over, a part we all learned to love or hate through the eyes of Gordan Gekko. (click on Gordon, the classic Greed is Good Speech) An extreme example of what I am writing today, but none the less, something to consider. Greed, it is one of the seven deadly sins.

Fast forward to the struggling housing market, lay-offs, reduction in pay and the list goes on. A new culture has emerged, a thrifty, cost sensitive recycling consumer. Still infused with Greed! In my daily interviews with clients, I have to figure out what they want. What is the goal and why do you want to talk to me. In many cases it has been a warm referral, My Mother told me to call you, you took good care of her and gave her a good deal. We begin the dance of sales, what is your rate they say, I don't know, what is your FICO score. They say what are your closing costs, not sure how high is your debt ratio? After we get down to brass tacks, I tell them what the rate is based on there credit and loan to value ratio and this has been done reviewing rates from several of the top banks in the country. I then say, I am please to say you are approved and the rate is (today) 5.125% with 0 points. I think, hey, I am saving this person $281 per month....pretty good. When the response is. "Why is your rate so high?" they say. "Compared to what", I ask. I can do much better, I just saw a rate posted on Zillow for a full percentage point lower. ............ahhhhh, can you smell it? That's Greed!

The funny part, if the client was willing to work with a lender and understand the process, you will find that rates are pretty much the same from place to place. Closing may be a Little higher here but the rate is better, rate may be better here but there some additional fees. This is when the Greed sets in and consumers are blinded it. They must get what their neighbor has or else. Not knowing the neighbor has stellar credit and lots of equity might help or the neighbor was not greedy and acted on a good deal.

Since Thanksgiving, mortgage rates have been hovering around 5.00%, plus or minus a .25% depending on which way the wind was blowing or which way CNN's ratings were going might be a better analogy. Clients across the country have decided to hold off from refinancing because they feel rates are going to drop even more! I always ask "why do you think this?" The answer is because they read an article or they saw it on TV or a rate was posted on the Internet. I tell them, I do this for a living, I fully understand mortgage back securities and have all the live charts that tell me which way rates are going, I compare 20 or so lenders daily, price out mortgages taking into consideration the Fannie Mae and Freddie Mac Guidelines, read and analyze daily all the economic indicators. You know what, I can't tell you what rates are going to do, how the hell is the general consumer going to do this?

My point is, if you refinanced back in November or early December when rates first dipped to 5.00% to 5.25% (I speak in ranges, there is no time in life to nickel and dime anything, it gets you know where) and you were saving $300 or more on your payment, you are doing very well. BUT, here it comes......But there are clients that are still holding out because they know rates are going to drop more! That's right, we have consumers amongst ourselves that can predict mortgage rates....BRILLIANT, BLOODY BRILLIANT! Here is the math question of the day, pay attention: If you closed in November 2008 at a savings rate of $300 per month, you would be currently making your 5th payment on April first....you with me? You would save $1500 so far, almost paying for the closing cost outright. Now for the tricky Math, You the consumer wants to hold out for an 1/8 maybe a 1/4 percent more to save that extra $22 or $44 more a month and still have not refinanced yet. Ready.....by holding out for the extra $40 or so bucks, and not taking advantage of the rate a few months ago it will take you over 34 months to make up that savings you could of had in November. For those that are a little slow: I took the assumed extra savings of $44 you think you can get and divided it by the $1500 you could have saved. It comes out to 34.09 months to make up the last 5 months of savings. That is nearly 3 years to get back your savings potential!

Just in case, you will have this same test again when you turn 62, the Govt will give you the option of taking Social Security at a said amount, then they give you a teaser....If you wait until your are 65, we will give you a little more....hehehehehhe. Big Brother knows they win every time, its like thinking you can beat the tables at Foxwoods. Even at the lower amount at age 62, that revenue takes years to make up if you decide to be greedy and take the larger amount at 65. You know what, that was a bad example, we won't have Social Security 20 years from know....sorry, my bad. One more reason to refinance now.

Again, if you have the opportunity to save money and create a better cash flow on a monthly basis, take advantage of it. If rates do decide to plummet into the the low 4's or even 3's I heard somewhere, then refinance again! Too many consumers got caught in the refi greed of a few years ago. You did well, you did not increase your loan, but you refinance if the rate dropped by 1/2 percent. Savings is Savings, and if you save $100 or more a month then do it. Don't try to outsmart the markets or the economy. We have some of the top people in the world that can't figure this out.

Stop being so Short Sigthed, lock in a good rate today and begin saving. If rates drop that much again, refinance the mortgage again. Please don't lose this once in our lifetime opportunity to save hundreds of dollars a month!

If you would like to comment or email me, please do anytime. I truly love what I do and I have been writing mortgages since the early 90's. I can not say I know everything in lending, but I am very surprised of how many know more than me!

Bill Nickerson
Vice President of Hand Holding
978-264-4803
bill@billnickerson.com


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