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 Florida 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
*** CONTINUED ***
Miami Mortgage Rates Report: September 17, 2008
Remember when I talked about the whipsaw effect, yesterday? Rates with no lender compensation to the broker, called “par” rates in the industry *, are 5.875% now. That’s .375% higher than the 5.5% I reported yesterday.
Will mortgage rates come back down?
Maybe. They SHOULD since they are backed by the full faith and credit of the US Treasury. They SHOULD start behaving like the 10-year treasury bond yield, which is down .06% in yield today. They SHOULD be at the 5.5% mark….but they’re not.
The mortgage default crisis spread to the world’s largest insurance company, prompting yet another government bailout. Mortgage bond traders are starting to think that the US Treasury is going to have to start offering classes of debt, to deal with the crisis. Stratification of debt, like the old Resolution Trust Corporation bonds, will most likely take us back to where mortgage-backed securities trade at a wide premium to Treasury debt. This isn’t happening but mortgage bond traders are speculating that it might. If it does, then the demand for a 30 year mortgage, loaned to you, the American borrower, is not as high as a direct obligation of the US government.
What we seek to discover is how IRRATIONAL this fear, conjecture, and speculation is. While it doesn’t seem rational, it isn’t quite irrational at these price levels. If the 10-year treasury bond stays under 3.5% yield, and the mortgage bonds sell-off pushes mortgage rates up over 6.0%, then I think the fear isirrational and will change my recommendation- I’m still suggesting that you lock your mortgage rate at application.
* A par rate is where the originating mortgage broker does not receive any yield spread premium from the lender. Borrowers can negotiate a fee for the mortgage broker to give you access to “par rates”, which are typically lower than the “retail” rates banks offer.
