Rates Are Low, I'm Eating Crow (Hey, Lenn...Wanna Bite?)

This California (vegetarian) mortgage broker is eating a  big helping of CROW today, and what do you know?

It tastes great.

Surely I must have been one of the first to make this declaration early in 2008: What will it matter if rates go to 2% if the house won't appraise and the buyer won't qualify?

Well, guess what? I was wrong. Lower rates MATTER. To the housing market. To the industry. To the economy. To US! 

Fast forward to today: Lenn "Hardcore" Harley talking:  "When I hear someone talking about "lower interest rates. . . .  4.5% mortgage rates. . .  blah, blah, blah", all I can say is, "So what?"

"WHAT GOOD ARE LOWER INTEREST RATES IF THE HOUSE WON'T APPRAISE?"

 

You were the one who invited us to disagree on your featured post, right?

 

A DAY IN THE LIFE OF A MORTGAGE OFFICE (WITH 4% RATES)

Yesterday in the mortgage office, we had a moment when the 4 of us, who share a large private office, collapsed into laughter. No, not because it was one of those inexplicably brilliant 70 degree days you sometimes get here in California right in the middle of winter.

Someone came into our office and said this: "You remind me of those maniacs you see in a frenzy on the floor of the New York stock exchange."

You know what? He was right.

We paced around the office, talking into our headsets, our hands in wild emotional gestures. We watched nervously as rates went up, then back down. We pleaded with the lock desk for extensions, and high fived as new loans were locked.

Lunches sat in wrappers, uneaten.

Eight phones rang constantly: 4 office phones, and 4 cell phones. "Is it time to refinance?" "I need a pre-qual. Making an offer NOW!" "What are rates today? No! You're kidding!"

We struggled to keep up, and we loved every minute of it.

And the rate gods looked down and said "Let there be 4% rates." And it was good. Very good.

WHY LOW RATES WILL WILL HELP

Just because we cannot help EVERYONE with lower rates, does not mean there aren't PLENTY OF PEOPLE are out there that stand to benefit in a huge way.

In November our office was a sleepy little retreat where we stared at 6% rates on the computer screen, addressed Christmas cards, and worked on marketing pieces.

Now it is a MADHOUSE, alive with people wanting to buy or refinance.

Maybe you have read how mortgage applications have skyrocketed? Its true.

 

Let us not forget that not EVERYONE who bought a house did so with 100% financing. Let us not forget that there are still plenty of people with equity who bought years ago. Let us not forget that those people for the most part, have rates in the low 6's or high 5's, perfect candiates for a refinance.

And please, let us not forget about all those people who were WAITING for low rates and low prices to intersect and hand them an opportunity on a silver platter to buy.

Okay, Lenn. You asked us to explain why: LOWER RATES BRING LIQUIDITY AND SECURITY TO CONSUMERS. Translation: There will soon be more money circulating because of these lower rates, and fewer people in foreclosure.

1. Refinancing gives people more money. If your payment goes down $200 a month, you have money to spend that you didn't have before. If you took cash out when you refinanced, you also have money to spend. Lack of money in circulation is killing the economy, refinances help.
   
2. RENT payments are becoming higher than house payments! New homeowners are actually lowering their housing expense by buying. They are lowering their tax obligation. They are using this extra money to fix up their house and buy things. More money in circulation.
3. People who have adjustable rate mortgages and equitylines now have far lower payments because rates are so low. They have more money to spend now.
   
4. BUYERS: the more the merrier. It is plain old economics 101: the lower the price of anything, the greater the demand. I will admit that first time buyers and those with cash and good credit will lead the charge. But as many more flood into the market who can buy, inventory will shrink, and prices will begin to go up again.
5. Far more people with adjustable rate mortgages can now refinance into 30 year fixed rate mortgages. How does this help? By stemming the tide of foreclosures which is killing the value of real estate.

The downside of lower rates? Lenders are still operating with skeleton crews. Look for mortgage transactions to take MUCH LONGER (we are locking loans for 60 days). Why don't they hire more people?

Because we in the mortgage industry are holding our collective breath, hoping the rates stay low, and knowing this activity could disappear into thin air at any moment.

 

Written by Janet Guilbault, Mortgage Lending Expert Based Out of the San Francisco Bay Area