Di Kawell asked me to repost an article that I wrote at Mortgage Porter about what to do if you missed out on the low rates we had just over a week ago. Many consumers are surprised to learn just how quickly and dramatically rates can change. During our current market, I typically receive 3 rate sheets a day (meaning three rate changes a day). As if that wasn't enough of a challenge for a consumer who's trying to land the media hyped 4.5% interest rate, there are several factors that are currently impacting how mortgage rates are priced. Many folks won't qualify for that rate even when it's available for a select few.
Here are some factors that are complicating mortgage rates:
- Fannie Mae and Freddie Mac(conventional financing) have "hits" to fees (also referred to as LLPA). They recently increased these hits which are based on your middle credit score (if there is more than one borrower, then it's the lowest middle credit score) and the loan to value. They have also factored in various transactions or property types. If you own a condo, your price hit is 0.75% if your loan to value is higher than 75% and your mortgage is amortized for longer than 15 years. This does not apply to FHA or VA mortgages.
- No rebate pricing. Typically, 1% in loan fees (such as a "point") equaled 0.25% to interest rate. Right now, it's running about 1% in fee to 1% in rate. This makes pricing a mortgage without points or reduced closing costs very unattractive. Lenders use "rebate pricing" (also called YSP or yield spread premium) to cover these costs and "build it" into the rate. This also makes Fannie/Freddie's hit to fees that I covered in the point above, more dramatic.
- Lenders are artificially increasing rates to slow down business. Sounds crazy doesn't it? Banks are buried in refi business right now with the low pop in rates we had a few weeks ago. With industry wide lay-offs, they simply don't have the staff to handle the deluge of business. It's not uncommon to see lenders either raise rates a bit to slow business and also lower rates when they want more market share (this is one good reason to work with a mortgage broker or correspondent lender who shops all the banks for you).
- Lock commitments not being honored. When you lock in an interest rate, it's a commitment to a lender who is counting on your loan to be closed and delivered to them at a certain interest rate. Lenders keep a close eye (especially these days) on "lock fall out" ratios and will provide mortgage companies either favored or higher rates based on the percentage of loans that are successfully closed with them as compared to locks are unhonored. Worse yet, some lenders may terminate relationships with mortgage companies should their lock-fall out ratios become too high. PLEASE DO NOT LOCK WITH A LOAN ORIGINATOR UNLESS YOU ARE COMMITTED TO CLOSING THAT LOAN WITH THEIR COMPANY. A rate lock is a commitment between you and the lender.
I have locked in 4.5% for a handful of clients. They had a 740 or higher credit score with at least 40% equity in their home and were willing and able to lock...the timing was right. We utilized a forward lock agreement which instructs me to lock in when rates reach a specific point (or better). Since rates can change by the time I contact a client and they respond, a forward lock commitment has been a beneficial strategy for refinancing.
If you're buying a home, you may not have enough time to utilize a forward lock and do check with your loan originator to make sure your purchase transaction will take precedence over a refi...because it should (don't assume it will).
The best advice I can offer is to meet with a Mortgage Professional early if you are considering buying or refinancing a home. You can also follow me on Twitter to see what rates I'm quoting real Washington State home owners and buyers and get tidbits of mortgage information. And if you're checking out Twitter, be sure to follow Di too.
Rhonda Porter is a Washington State Licensed Loan Originator #510-LO-32047 and Certified Mortgage Planning Specialist. She has been serving Washington home families at Mortgage Master Master Service Corporation, a correspondent lender located in King County, for the past nine years. Prior to mortgage, Rhonda managed an escrow branch of a title insurance company located in Federal Way.
You can reach Rhonda at 206-718-9488 or visit her nationally recognized blog The Mortgage Porter.
