RPM Mortgage in California
When It Comes to Rates, Borrowers Don't Know What They Don't Know
 
 
As it has in the past, I received several calls on Friday that started like this:  "Hey Rob, I heard that the Fed lowered interest rates again.  Does this mean I can get a lower rate on my mortgage?"
 
In all honesty, I have to give credit to the callers in this case.  They have their antennae up and are aware of what the Fed is doing and that's a great start.  I like dealing with clients who are in tune.  However, this week was a classic example of "you don't know what you don't know" in the mortgage market.  Here are the two fundamental opposing forces with which we contended:
 
  • Yes, on Thursday, 9/13/12, the Fed did indeed launch a new round of quantitative easing (or QE).  Specifically, the Fed pledged to purchase $40B of mortgage-backed securities (MBS) per month.  This has the potential to be great for rates!  And more so because the Fed is aiming the bond buying at MBS and not US Treasuries, and the latter does not have a direct impact on mortgage rates, contrary to what many believe.
 
Net Result to Mortgage Rates:  LOWER
 
 
  • Also this week, many investors began to implement the increase in Fannie Mae (FNMA) and Freddie Mac's (FHLMC) guarantee fee.  This is also known as the "g-fee" and it's really a type of insurance not far removed from the FHA's UFMIP.  "But wait!," you say.  "Conforming loans don't have mortgage insurance!"  You are right.  But nothing in home lending is free.  FNMA and FHLMC build an insurance mechanism into their base rate and this is the purpose of the g-fee.  They have earmarked it to raise by about .500 in price to the corresponding interest rate offered (this is complicated, but just know that this translates to about .125% to .250% higher in rate --- all things equal).
 
Net Result to Mortgage Rates:  HIGHER
 
 
Mortgage Pricing Tug of War 
 
 
So when I have the conversation I described above, unfortunately I have to tell my prospect that while the environment is conducive to lower rates, this week was a wash.  The Fed and the government agencies are at odds, and this is not the first time it's been this way.  It doesn't make a lot of sense, and a cohesive, harmonious policy towards the housing market would serve us better.  But until we get it, it's important to consult a professional about the factors that influence your mortgage options.  And it's most important to take decisive action when the time is right FOR YOU, and not try to outthink and outsmart the market.  You don't know what you don't know.
 
 
 

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Robert J. Spinosa

Home Loan Professional
DRE: 01297944 NMLS: 22343

1058 Redwood Highway
Mill Valley, CA 94941

877.270.5959 Toll Free
415.367.5959 Cellular
415.366.1590 eFax
rspinosa@rpm-mtg.com

 

 
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14 Comments on When It Comes to Rates, Borrowers Don't Know What They Don't Know

SEP
16
191,609 Points 2 Featured Posts Outside Blog

Thanks for the posting, Rob.  Clarification on this issue is so important.  You are right... it is great that the general public is paying attention to this news.  It means, they are seeking answers and direction!!
8:18am • #1
655,858 Points 56 Featured Posts Outside Blog Called Shot Master

I find the simple question of how long do you intend to own the home is often not asked. I think long term plans vs short term plans should be laid out.
9:38am • #2
447,309 Points 72 Featured Posts Outside Blog Called Shot Master

Rob, I so appreciate your reports because I really feel like I can understand what is going on.
11:39am • #3
708,843 Points 47 Featured Posts Localism Sponsor Outside Blog Called Shot Master

Rob, I agree with you that it is very important that the public is monitoring the activities of the Fed....more importantly it is good that you provide the clarification of what those actions do i.e.: the cause & effect in simple understandable terms!
12:35pm • #4
This is very true. Sometimes we need to remember that most people don't think about mortgages and all the details everyday like those of us in the industry.
5:14pm • #5
1 Featured Post

As Sy Sims says "An educated consumer is your best customer"
6:40pm • #6
SEP
17
730,739 Points 15 Featured Posts Outside Blog Called Shot Master

Rob, thanks for pointing there is much more behind the scenes than what we hear on the news. Good information!
5:48am • #7
Localism Sponsor Outside Blog

Rob...thanks for the update
8:16am • #8
1,126,046 Points 90 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Thanks for a great explanation on this.
9:41am • #9
498,310 Points 150 Featured Posts Outside Blog Hit Router Called Shot Master

Rob:  It's great that we have informed and educated clients and potential clients.  Even better that they take the time to contact us for clarification and action, should it be possible and to their advantage.  No negatives at all there.  You do a great job of explaining and educating as to WHY rates are not always what they seem.  Exactly our job.  Congrats on a well-deserved and timely Feature!

Gene
10:05am • #10
648,311 Points 63 Featured Posts Localism Sponsor Outside Blog Called Shot Master

This is a great explanation. Sometimes I think buyers have just gotten too greedy.  They are having some of the lowest prices in over a decade and dirt cheap rates - yet some always want "more".  Get over it already.  You are already a winner if you can buy into this market. 
11:04am • #11
123,346 Points 2 Featured Posts Outside Blog

Its the buyers turn.. They listen to the news.  The rates came down, they heard that!

Ruthmarie,  The opportunity is for the NOW BUYERS, they should NOT have to get over themselves, it's their turn. 
1:19pm • #12
228,580 Points Outside Blog Attended Rain Camp Called Shot Master

Robert -- the one thing the Fed did NOT do this past week was lower rates.  The base rate is still stuck at about .25%.  That said, the QE is likely to help keep mortgage rates at historically low levels.  Some one pointed out over the weekend, that this round of QE (3) is indefinite in term - and they figured it was to avoid the numbers on the QE continuing to rise (i.e. 4,5,6...).
1:42pm • #13
175,978 Points 5 Featured Posts Outside Blog

Ruthmarie --- I totally agree.  There is such a premium for action right now.  Hindsight is really going to make the handwringers look bad.

Steven --- Great observation.  I made it sound as if the Fed lowered the overnight lending rate.  They did not.  However, my point is that the public has become accustomed to hearing Fed news as a lowering of rates, whether or not that is founded.  I hoped to shed some light on the attitudes more than the actual facts in this case.  I think the A/R audience can make this distinction, but you are technically correct and I appreciate you pointing that out.
1:49pm • #14


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