You may have read some other posts on ActiveRain about mortgage rates in recent days/weeks wondering exactly what's going on and speculating on where we are headed. First I will reiterate that what the Fed does will not necessarily translate into what long-term interest rates like mortgages do. The end of January did offer the best rates we have seen for quite some time but since about 2/10 rates have worsened from one day to the next about 80% of the time. If you are "floating" right now, you might feel like you're playing a game of "Deal or No Deal" gone wrong and you're opening all the cases with the big amounts in them.
So what's going on?
First off, the yield on the 10-year bond is having a significant effect. As I type this post it is sitting at 3.87%. Generally speaking, as the price drops the yield goes up and so do mortgage rates. A drop of 11/32+ or more to the bond is often an omen of a mid-afternoon price/rate change. If the yield were to spike up to say 3.93 or 3.94 this afternoon we would most likely see a rate hike before the close of business Easten time. If the yield drops, lenders are a little less quick on the trigger to improve rates (just like gas prices right!?)This leads us to the second part of the equation...
Second, underwriting volume and turnaround time on loan packages---particularly FHA and VA loans are stretched right now with many of the nation's largest FHA lenders/servicers. They see no need to drastically improve pricing for loan applications they can barely accommodate. Government loan demand is up and the capacity/number of mortgage companies to handle the demand is down. There are only so many DE certified underwriters to approve these loans and you cannot just add more of those overnight. If you have a loan in the backlog at Taylor, Bean, and Whitaker right now you know exactly what I mean here! Wells Fargo has gone from 3 to 5 and now to 7 business days on new submissions in the last 2 weeks. With clearing conditions for month-end closings this week, it might just get worse before it gets better. On top of this, these lenders are seeing a lot of loans that simply do not come close to qualifying with poorly-completed submissions just trying to throw something against the wall to see if it sticks. Volume that would have gone, dare I say "Subprime" (beginning to hate that term and its overused generalizations) is being funneled into the FHA pipeline too...the magnitude of processing denials creates an additional burden.
If you are an agent working with a buyer pre-approved for FHA, patience will be a virtue. Don't steer buyers away from FHA though--For many buyers it is the best option available to them. (see my previous blog post on FHA vs Conventional pricing). Do advise them to be watchful of rate locks and aware of when they expire. If you are writing a contract today a 15-day FHA lock just isnt going to cut it with many FHA lenders right now. If an FHA loan is the best scenario for my borrower, I will gladly explain to them exactly why it's worth the little bit of extra time in their case. If more loan officers had done this over the quicky subprime loans a couple years ago, let's face it...we wouldn't have as many problems in the lending industry as we do right now. The Option ARM's thankfully never got popular around here in Kentucky but there sure were a ton of those 2 and 3 year ARM's with high margins!
Best wishes to all out there---Thanks for reading and I appreciate your feedback.
-Kevin
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