Okay, so what have you heard on the street in the last several days? I am sure many of you have heard that interest_rates were lowered. Now, I don't want to confuse you, because I want to keep this very simple and educate you from my past experiences in the mortgage industry.
I want to make one bold statement before we move forward. We all get our money from the same place. Meaning, if your loan officer works for a bank, a correspondent lender, or as a broker, we all deal with the same money at the same price. I need to make this statement because I see to many lenders or loan officers advertise that they have the best rates, no matter if the market was up or down. So many people confuse best rates with great service. Meaning, there is a higher god per se that sets the pricing on Wall Street, no matter if you are Countrywide, Wells Fargo, Bank of America, or x,y,z mortgage company (mom & pop shop), it's all the same.
Confused yet? I hope not, because that should have been easy to understand. Too many consumers focus on the best of something, easily forgetting the importance of what they are trying to accomplish, their goals, and that buying or refinancing a home is and can be emotional. And the sad part is that many of the loan officers out there know this. Sometimes willing to tell you what you want to hear and backing you into a corner, until it's too late. That you are now desperate to refinance, needing that money or lower rate. Or that you fell in love with that home and that you must have it now, at any expense. And that you will worry about the consequences of your actions later.
How do I know all of this? I deal with it weekly. I could give you real and live examples that aren't staged. Just be careful not to shop yourself out of the market !!!!
But I want to get back to the discussion at hand. Mortgage rates, rates, and interest rates.... the percentage that is charged for you to borrow on the open market per se to obtain financing for a particular property.
When rates adjust, it basically increases or decreases the amount of money circulating within the economy. The Fed is acting as the throttle and the break for economic growth and inflationary control. If the Fed can keep interest rates low, there will be more money in the economy. This type of control allows banks to either lend more money when rates are low because credit is cheaper or lend less money because the cost of credit is high.
A MUST READ.... DON'T STOP NOW !!!
Conclusion : Rates were lowered a week before the Fed's regularly scheduled meetings because of the foreign market's decline of more than 9%, which influences the U.S. market. There was fear and speculation that the US market would open up, down over 500 points the next morning. This did happen and at one point, rebounded. The market was correcting itself for several reasons. My concerns aren't why it happened, just because the news reported that the interest rate dropped, but because lenders are now advertising it all over the place. My fear is that they will use this news to get you into the door. Do you know what happened the day after this great news? Rates went right back to where they were the day before and in some cases, higher. I locked 7 clients into yesterdays rate, because I know better and because I have been through these quirky markets before. I know many lenders didn't lock their clients in and might now be playing roulette with your rates. Some will honor your rate locks, others won't. And if you were quoted great rates just the other day, check again. If they tell you that nothing has changed, they are lying to you. The market doesn't lie, so check it out yourself.
Overall, will rates come back down again when the Fed meet next week? Maybe, maybe not. It wasn't the chance that I was willing to take and I even told this to my clients that were shopping. Many companies are still promising lower rates, not to lose that consumer as a client. And because they can bascially state 1 to 5 excuses why your rate moved when you finally make your decision. It's just the facts of life. My advice, go with someone that can explain all of this to you. Go with someone that will call you or e-mail you when the good changes happen and when the bad changes happen. Why? Because the news of rates changing for the worse won't hit the general public until next week. The market corrects itself when it wants, but many loan officers don't share the negative news in fear of the consumer running away. If you didn't lock in 24 hours after the news, you might not see anything positive for 2 to 3 weeks, and this is just an educated guess backed by 15 years of experience in the mortgage business. It's called, lenders hedging high to recoup previous losses. They adjust and readjust at a blink of an eye, keeping some of the profit that was lost in the last quarter.
And a little FYI..... if you are putting less than 30% down and your credit score is less than 680, your best mortgage option might be a FHA mortgage. Don't let anyone else tell you differently.
Jeff - wasn't difficult when we first started that often a drop in the interest rate means an increase in the loan rate. Have seen it time and time again. Reason why it was so hard to learn for us is because it doesn't necessarily make sense, and we all very much understand that reality, like government, doesn't have to.
thanks for your efort here. It's right on and appreciated.
cheers
Jeff,
Thanks for the informative post, I may email you for free advise!!!
GARY..... and what year was that? ;o) For me, 1992..... there is usually a rule of thumb when it comes to rate going up or down, depending on the stick market and the bond market. But as you stated, this is not always true all of the time and here is a great example in the last few days. thanks for your feedback.
RAY..... you can e-mail me anytime. Just that I don't know what kind of free advice that could offer. The market is to volitile to use any crystal balls. Besides, I didn't know that anything in life was free.... ;o)
LANE.... I agree.... the question would be, what numbers do we use? If someone is off on any of the numbers or off on their assumptions, another reason why numbers could change in a heatbeat. As you stated, overall, lenders have to lend money and will do so, no matter how bad or good the economy is. Just that some lenders will sharpen their guidelines as an excuse not to over extend themselves or lend as much, when things are tight.
MIKE..... well, all I know is that we are making loans. But it's not always the lender not wanting to write loans, but the consumers not meeting the lenders qualifications. I have had 3 just recently call me to help them and they haven't made a mortgage payment in 12 months.... how can you lend then???? In any case, thanks for the polite compliment.
RICH..... well, you and understand a lot of this, but the average consumer won't have a clue. And what makes matters worse, are those loan officers and lenders that don't tell the consumer this. But mislead them, making them think that nothing is wrong.... and when it's time for settlement and nothing changed for the good on the pricing side, that lender will just give them what is available. And take a risk, to see if the client will walk or not. basically going back to the basic bait and switch methods.
ERIC..... there is just so much confusion in the market place right now, that not too many know which way is up and which way is down.
THESA.... lol...... I have been busy enough that I haven't paid attention to much in the last 2 days, but the bond ticker and my cell phone and e-mail... lol And it's not so much because of new business because of lower rates on Tuesday, but keeping up with my past clients and locking them in.... thanks for the compliment.
Jeff,
FHA has its place in this market and I do see things moving towards that type of loan program, especially if they raise the loan limits.And what about the volitility the past few days. Good thing my office is on the first floor in case of a need to jump.
Bottom line.......deal with a proven and trusted lender. Right?
ADAM..... I totally agree. I know for a fact that some loan officers got greedy and now, if it keeps getting bad, rates going up for a week and these clients are about to settle..... well, I have known some loan officers not to honor certain rates and or fees. As several have said, it comes down to someone that you would trust and not the lowest rate. Thanks for the polite compliment.
KEITH...... well, I am definitely in agreement with that one... ;o) And we will see what happens in the next few weeks with the higher loan amounts. In regards to your office being on the first floor? That was a funny statement.....
CYNTHIA..... yes, something that I preach. But as I have mentioned to so many consumers in the past, how do you know sometimes, if you haven't been referred by someone? Even on a refinance.... shouldn't they go back to their original loan officer if they had a good experience before hand? That part I don't get. Does the consumer get greedy then, by taking that chance with a new lender, because of their promises of great rates?
JASON...... yes, for the most part. I am some what of a gambling man. But not in the last 2 years when it comes to mortgages. I can guarantee you that there are a lot of pocket locks out there. Thanks for the comment and the follow up on my FHA statement.
DANNY..... I didn't bring up the 2nd part of your comment in my post, because it would be more confusing and longer. My whole point is that the statements from some lenders stating... "we have the best" or "we have the lowest rates out there, period" are just that, advertisements. Yes, there are some lenders that pad their rates and pass it to the loan officer who then have to pass it onto the consumer. But for the most part, rates are the same across the board from the get go. It all comes down to what the lender or loan officer wants to charge as profit.
On another note, even though your branch would take a hit, they could still be happy at a certain price below what they had you priced at. As long as there was profit. It was just a way for them to pad their cost centers... and how they could pay overrides to their managers. Thanks for the input.
SHARON..... thanks for the kind words..... As I am trying to educate the average consumer, most of what you hear in the news is to curb fears in the market place. Rates are even worse today, 2 days after the announcement that they were cut... and most lenders lowered them. But as I mentioned, it's called hedging and it's the end of the month. Hopefully they will rebound in 3 weeks.
Jeff,
Well said...It's easy, but it's complicated!!! Thanks, Fran
Jeff,
You ask what I though of this. It's good information. It's also a very ambitious! You're passing on a lot of information.
Don't worry about confusing your reader, this confuses most people. It is confusing.
I totally agree "we all get our money from the same place"what people need to know is it's a market, not "a" building or single institution! From that market to the consumer the money touches many hands. Every one that touches the money wants and gets paid. The consumer's needn't worry about how many people are getting paid, but rather about the total cost. Odd but true! When a broker is involved between the consumer and the money, they add more hands, but drive the total cost down. (Broker in this case includes the small correspondnt lenders.)
When someone offers "the best rates" they are either saying were taking less for our service, or more likely lying.
For more than thirty years I've been teaching: "The only protection the consumer has is the personal integrity of their agent!" We completely agree, people who shop for the "best" any thing, except integrity, can only hope they don't get the best screwing.
People do "shop them selves out of the market" getting turned down for the "best" rate when they could have had a realistically good rate.
Your so right about the amount of money, but it is not the gross dollars. It's the dollars available compared to demand!
The Fed' rate a/k/a the discount rate, does not determine mortgage rates. It does strongly influence mortgage rates, Lenders don't make 15 to 30 year loans based on the over night cost of money.
Finally people have to understand, money is a commodity just like corn, pork bellies, or say fuel oil. Lenders are out to make money and not just from accrued interest! Lenders will guess at the market believing that by holding their portfolios a little longer they'll make a lot more money in a falling market or by buying futures in a riseing market. Often when the Fed lowers the market influencing the rate downward the consumer has already gotten the better rates.
It was anticipation of an improving market that caused many mortgage companies to fail durning the current crisis.
Again it is only the personal integrity of the loan agent that the consumer has to depend on. There is this Belonger guy in New Jersey I'd recommend. (I would make him give me a full Good Faith and Truth in Lending disclosure for a conventional loan, he's a bit hung up on FHA.
Keep up the good work.
Bill
William J Archambault Jr
The Real Estate Investment Institute
There are just no guarantees or crystal balls. If only my clients would grasp that. I agree that those who hesitate will probably be sorry.
Meow :)
DANNY..... and that was the point that I was trying to get across to the consumer. I am getting so tired of advertisements that state...."best rate".... "nobody beats our rate".... "cheapest", etc etc
FRAN..... it certainly is and it doesn't help any when noone explains it. And those that make it sound like they are the best. And usually when just selling rate, the service might just be average at that.
WILLIAM...... yes, it confuses most people and many loan officers also....The last part is sad. How can one originate loans when they don't understand the process and information like this.
You made this statement which hit the nail on the head. "The consumer's needn't worry about how many people are getting paid, but rather about the total cost."
You made some great points, so thanks for the comments. Especially in regards to your last comment... lol
JENNIFER..... I agree that there aren't any guarantees and crystal balls..... I can guarantee you that... lol
Jeff,
You mean "Keep up the good work." I say that to many bloggers.
Bill
Hey there Jeff,
What is your guess for rates tomorrow... I'm just now dusting off my crystal ball... LOL
Rick
Jeff, great post!
I still dont understand people post on the blogs "FED cuts rates... get a lower interest rate now! when you buy"
BILL..... oh well, and I thought that I was the only one that you said that to... ;o( Seriously, always appreciating any comment from you.
RICK.... let's see, today is the 27th and you asked this on the 30th of January? I say... up, higher... lol Seriously, I wrote about this in my 2007 end of year mortgage blog, about where I think rates will be for the most part of 2008. I can see them coming down half of what they were 4 weeks ago... but for the most part, we won't see anything like they were 4 to 5 weeks ago. Just my opinion.
FREDDIE..... thank you very much for the kind words and thoughts. I just see so many running around there, giving advice in the market, but making it sound like it will happen, and not that it's based on their opinion and guessing abilities. The written word can sound powerful, but could lead you down the wrong path at times.
ROBERT... thanks for the compliment. Robert, I don't understand either. But remember, it's a form of advertising and those people that write such topics or words, even of they are wrong, it does get readership and sometimes business. As a consumer, you need to do your homework and research.
JOHN..... I don't think so.Not for a while and that could mean not until August, the end of this year... or not for a whole year. Read the first half of this, what I wrote... Active Rain 2007 Year in Review -- Mortgages -- by Jeff Belonger
My question to you would be, what are your goals? What are you trying to accomplish? Why is it that you want to refinance or need to refinance? I can be reached at jbelonger@ihmci.com, if you want to continue this discussion. I would be glad to answer any of your questions or give some insight.