The Mortgage Reports Blog

Use A Boy Scout's Approach When Shopping For Mortgage Rates

If the changing mortgage guidelines don't bedevil you, changing mortgage rates will. 

It's getting even tougher to shop for low mortgages rate because rates refuse to stay in any one place for very long.  The pie chart above puts it in perspective. 

The data is astounding -- especially against the rate-change numbers from earlier this year.  It appears that mortgage rates are getting more volatile as the year goes on.

• For the 2 months ending May 19, 2008, rates changed on 68 percent of the days
• For the 2 months ending June 20, 2008, rates changed on 73 percent of the days

Today, rates change mid-day 82 percent of the time.

When you're shopping for a home loan, remember that Wall Street often sets the rates -- not the loan officer.  Your best protection from mortgage rate volatility, therefore, is to saddle up with a pro that understands how Wall Street works, and then be prepared to lock your mortgage rate as soon as possible.

This last step is critical. 

As an example, think back 6 months.  On January 23, 2008, 30-year fixed mortgage rates dipped to 5.125% and stayed there for fewer than 3 hours.  The 30 days that followed was a complete unravel job. 

Shoppers that were prepared when rates dipped in January now have very mortgage rates.  Those unprepared, however, missed the boat.

Volatility comes from economic uncertainty and that should continue at least through the rest of the year and probably deep into 2009.  The best protection from it is simple -- make like a boy scout.

Do You Want To Know How Fast Mortgage Rates Can Change?

You weren't asking for it, but I'm going to give it to you anyway -- more proof that "mortgage rate surveys" are inaccurate and out-of-date.

Freddie Mac's Primary Mortgage Market Survey published this headline Thursday morning:

LONG- AND SHORT-TERM MORTGAGE RATES TAKE A WELCOME PLUNGE
Market Speculation About the Fed's Future Actions Allows Rates to Drop

Now, to be fair, the headline itself isn't false.  Rates did fall Monday when the government pledged its support for Fannie Mae and Freddie Mac.  The problem is that the headline ignores everything that's happened since Monday. 

Since Monday, of course, mortgage rates have been surging higher -- by a half-percent in some cases.  Rates are rising because there have been multiple signs that inflation is growing and the U.S. dollar continues to weaken.

The Freddie Mac survey, on the other hand, says that mortgage rates are lower.

Like we talked about earlier this month, mortgage rate surveys like Freddie Mac's can't be proxies for live mortgage quotes any more than newspaper-printed prices for Proctor & Gamble stock can be the price at which you buy PG.  To get an accurate quote, you have to talk to someone who can access "right-now" pricing and given the current market climate, this is an extremely important distinction.

See, since January, mortgage rates have been especially volatile, often moving more in one day than they used to move in a week.  This is because of market uncertainty and concerns about the economy. 

And, until those fears are quelled, expect the volatility to continue.

So if you're in the market for a home loan and need to know what mortgage rates are doing, or even if you just want to follow along for fun, track the mortgage market by following me on Twitter.  I post 140 characters or less a few times daily and you can have it piped right to your mobile if you want. You'll always know in what direction rates are headed.

Or, don't follow me.

Why You Can't Get Your Rate Quote From Freddie Mac's Weekly Survey

If you spend time researching mortgage rates online, you'll eventually trip onto one of the following Web sites that tout "national rates" for mortgage borrowers:

• Freddie Mac's Weekly Mortgage Rates
• Bankrate.com's National Overnight Average
• HSH's Mortgage Rate Survey

Unfortunately, none of the rates quoted on these sites are especially helpful to mortgage-shopping Americans.  If you're looking for an actual mortgage rate quote, you're going to have to speak with a loan officer, or use on an online mortgage approval system to get one.

Mortgage rate surveys don't help rate shoppers because getting an accurate quote is like buying a suit -- there's two parts to the process:

The 72.73 Percent Probability For Morning Mortgage Rate Quotes

The pace at which mortgage rates change each day is quickening.  This pie chart puts it in pictures.

In the last 2 months, mortgage rates changed mid-day nearly 75 percent of the time.  This means that an offered rate at 9:00 A.M. is likely expired by 4:00 P.M. (and has probably even spoiled by High Noon).

One rate sheet used to last an entire day, making life supremely easy for buyers in need of a home loan.  Lately?  Not so much.  Mortgage rates are as volatile as the stock market, plunging and soaring at any given moment and leaving confused rate shoppers in its wake.

I advise talking to multiple lenders, but doing it smartly.  A few extra hours to "shop around" may end up increasing your mortgage payment because rates have ticked higher in the meanwhile. 

On the other hand, if rates fall during that time, your payment could drop but for some strange reason, that sort of luck seems to be reserved for the other guy, now doesn't it? 

So, we don't know what rates will do, but we know that they'll do it quickly.  The best way to approach markets like this is to be ready to commit to a lender if you can lock in a comfortable monthly payment. 

If rates fall after closing, after all, you can always remortgage to a lower rate later.

5 Things That Don't Control Mortgage Rates

This is a short list of things that don't control mortgage rates:

1. 10-Year Treasury Note
   The image at right is evidence -- even as treasuries were improving yesterday, we can plainly see that mortgage rates were sucking eggs.  Green means better rates; red means worse rates.


2. The Fed Funds Rate
   The Federal Reserve's benchmark lending rate is an overnight rate; mortgage rates are long-term rates.  If the two were connected, mortgage rates would be much lower today and this graph would look different.


3. Ben Bernanke
   See above.  Ben Bernanke is the Chairman of the Federal Reserve, the group that sets the Fed Funds Rate. 


4. The Fictional 10-Year Treasury Bond
   Not only is there no such product -- treasury bonds have durations greater than 10 years -- but check out Paragraph #10.  0-for-2.


5. Chuck Norris
   Although, for as much as mortgage markets fear inflation, they fear Chuck Norris even more.

The only thing that sets mortgage rates in the U.S. is the price of mortgage bonds.

How Mortgage Rates Went From (Relative) Riches To Rags In 30 Days

You are about to read a 3-minute summary of the last 4 weeks in mortgage lending. 

It's the second-best 3-minute summary you will get today -- the above recap of Airplane! ranks #1.

How The "Mortgage Fringe" Can Keep You From Getting Low Rates

If your mortgage is more than 3 years old, it really likely that your mortgage rate is higher than it needs to be.  It may be time to remortgage.

Relative to any point in time since August 2005, mortgage rates are extremely low.

If your mortgage is being professionally managed for you, your loan officer has already called you to start the remortgage process. 

If he hasn't called, it may be time to find a new loan officer -- you may be the proud owner of an orphaned mortgage and didn't know it.

But besides low rates, though, there's another major reason to check in with your loan officer.

Mortgage Rates SHOULD Have Fallen Yesterday, But They Didn't

It's Thanksgiving Week and already we're seeing the effects that vacationing traders are having on markets.  Out of nowhere, mortgage bonds rallied late yesterday, pushing mortgage bond yields downward in the last hour before the market closed.

Typically, mortgage rates will mirror the yields of mortgage bonds, dropping when yields drop and rising when yields rise. 

Yesterday?  No such luck.

Ever protecting their profits, mortgage lenders chose to ignore the rally and many held their respective mortgage rates unchanged.  This created a small "spread" on which the banks could earn extra revenue.

Now, if the situation had been reversed and bond yields were heading north, you can be sure lenders would have been quick to adjust their rate sheets.  This pattern is the genesis of a famous saying:

Mortgage rates take the elevator up, and take the escalator down.

In other words, mortgage rates are much quicker to rise than to sink.

The thin trading volume that created yesterday's overblown rally will persist today and volume should thin even further through tomorrow's market close.  By Friday, markets will be a shell of their normal selves.

Remember: Fewer traders = lower volume = more rapid mortgage rates changes because fewer traders available to buy mortgage bonds when somebody is selling them; or, vice verse.

Gobble Up Mortgage Savings

Sorry for the cheeky title -- I just wanted to join the 1,040 (and counting) other news stories with "gobble" in the title at Google News. 

Does this word get used at any other time of year?

Oil touched $60 yesterday, but despite the upward pressure, mortgage rates are gently sliding into the holiday. 

This could be the result of political unrest in Lebanon and/or declining consumer sentiment, but more likely it's the result of traders moving their money out of stocks and into bonds as a Safe Haven for the weekend.

Expect rates to flat-line through Monday, and expect me to be off-air until Monday, too.  I'm off to Philadelphia with my wife and 6-month-old, so if you're on my flight and the kid is crying for two hours straight, please go easy on us.  Thanks. ;-)

Oh, and my apologies to 5-year-old Emma Schweitzer, whose Turkey-Hand I borrowed for this post.

Source
Schweiter Family Web Site
Emma Schweitzer, November 22, 1999
http://schweitzerhome.net/blog/art/turkey.jpg

When Economists Being Wrong Changes The Time Risk Of Lending And, Therefore, Mortgage Rates

For as much as we talk about expectations, it never hurts to review the rule of why mortgage rates go up every time that economists get surprised:

Banks rely on economists as much as you do.

When the "experts" are wrong, or when they make bad predictions about the economy, everybody has to recoup from the damage. 

Think of it like a giant game of Don't Tip The Waiter.  If every piece is right on the middle, balance is never a problem and every player is safe.  Only when too many pieces are outliers on the edges does the whole game swerve wildly.

People sometimes forget that the investment horizon of a bank differs from the investment horizon of its customers.  Banks think in terms of days (or weeks) for their investments; customers think in years. 

Because banks focus on very short-term investments, they need to be careful when lending to a person for a relatively long period of time like 3 year, or 30 years, or longer.

The bank's biggest risk in tying up money long-term isn't the homeowner's default risk, but the risk of time.  Time is a great unknown and can changes the value of money. 

We have all heard the "candy used to cost a penny" bit from our folks.  Well, how about this one: "Gas used to cost $1.49 per gallon".

As life and living gets more expensive, banks want to protect themselves from the rising costs so if a bank thinks that money is going to be worth less in the future, it will raise your interest rate today to compensate for that loss. 

This is one of the reasons why ARMs tend to have lower rates than fixed mortgages.  With ARMs, you agree to share the time risk with the bank and, in return, the bank agrees to lower your cost of borrowing.

Now, let's wrap this all up in a nice little bow and get back to the economists ruining your day. 

Because banks rely on economists to make their risk projections, when economists under-project how the economy performs, the banks react by raising mortgage interest rates to cover themselves against time and their new projections of time risk.

This week, economists have been really wrong and, as a result, the waiter is about to tip.

Source
Don't Tip The Waiter
Kidd's Toys
http://www.kiddstoys.co.uk/tipwait.htm

(Image Courtesy: Christopher Gurshin)

Mortgage Rates Are Moving Higher But May Be Just Along For The Ride

With markets closed for Good Friday, low volume and volatility will be in vogue this week.  Especially after last week's chaos. 

Recapping the carnage:

1. Strong payroll data from March point to a tightening labor market which usually leads to inflation.
2. The prices of gold, silver, copper, oil and other commodities rose sharply which usually leads to inflation.

As Newton told us: An object in motion tends to stay in motion and all momentum is pointing towards higher mortgage rates.

The momemtum was already there, and the new data just accelerated rates on their upward trajectory.  For some mortgage products, interest rates are 0.50% higher than just 30 days ago.

In addition, a major sub-prime mortgage lender changed its underwriting guidelines and eliminated stated income deals at high loan-to-value. 

One lender does not make a trend, but I will keep an eye on it.  If 95% and 100% stated income home loans are no longer available, there are a lot of highly leveraged borrowers will be stranded if their ARMs begin to adjust. 

This is Story #3 in the coming Foreclosure Boom (that I hope never arrives).