Changing Times, Never a Dull Moment

Mortgage and Lending with Brand Mortgage Group

I have been in the mortgage business for quite a while.  Which in many cases only indicates that I am older than I was before.  But to really be in tune with what happens, to be a professional in what you do, you have to keep up with the changing times.  It is critical that you know what is happening in every facet of your business.  Then trying to stay one step ahead of the next change. 

One of the biggest changes over the long haul has been how interest rates are affected by certain things.  Years ago you could pretty much know when something happened, (stock market up, inflation down, bond sales, etc.) what the the response or reaction in the mortgage rates was going to be.  We were pretty much an enclosed system, meaning that what happened in this country was what affected other sections of the economic system.

Then, gradually at first but ever faster since, the situation started to become much more global and much more unpredictable.  Where at one time for every action you knew the reaction now you can never be sure.  Much of it depends on how "they" interpret things.  The "they" primarily being money market managers, bond fund managers, and those who handle where money is invested.  When the Federal Reserve speaks you can count on thinks happening, sometimes good, sometimes bad, sometimes ho-hum.  In years past when the Fed lowered the overnight rate most other rates would follow, including mortgages.  But this year as the Fed has lowered overnight rates in many cases long term mortgages have gone up.  

Most consumers automatically think that when they see that the Fed has lowered rates that mortgages will be lower as well.  Then when that doesn't happen they are disgruntled, unhappy, and certainly don't understand.  Many in the industry are the same.  But what they don't understand is that what the Fed is lowering is the OVERNIGHT rate charged to banks for OVERNIGHT borrowing.  There is a pretty big difference between overnight and thirty years.  

While normally there would be a downturn in mortage rates this year has been so different because of a different environment in the mortgage industry.  Due to the sub-prime mess, the paranoia and fear, there is not a real great appetite in the market place to purhcase MBS's (Mortgage Backed Securities).  Nearly all mortgage loans end up in MBS, including those from Fannie Mae and Freddie Mac.  Since there is such fear, even for high quality "A" paper packages, the demand to purchase these is low, and will probably continue to be low until we are further down the road of filtering through the dust of wreckage.  When demand is low those that are willing to buy want higher returns on their investments, and thus we have an a situation where long term mortgages are at a much wider spread (higher) over the treasure bonds than they would normally be in this rate climate.

But even with that being said they are still VERY GOOD.  I beleive that rates are not what keep people out of the market place.  When people are ready to buy they will buy.  I remember in the early 80"s when fixed rates were at 16-18% and the "new" ARM's were at 10.875% with no caps and we still did business. 

I don't claim to be a "guru".  If I was and could truly predict what was going to happen I would be on my island in the Carribean e-mailing my reports to those who would pay handsomely for it.  But I do try to stay in tune with what is happening, help keep my clients, agents, and other sources of business informed, and help in any way that I can.  I would love to help you as well!

One thing is for is never dull, never boring. 

Comments (4)

IMNJ - Internet Marketing Specialist
Internet Marketing NJ - Red Bank, NJ

Merlin - I really appreciate a person who speaks from experience. While it is an emotional response that generally causes an action (like a sale) emotion or fear can be the catalyst to make a poor decision as well.

Thanks for a great post.

Jun 10, 2008 01:54 AM
Steve Homer
The HBH Group (Keller Williams affiliate) - Round Rock, TX

Excellent post to help most of us not in the mortgage business to understand the inrtricacies behind the scenes.  Rates are much more complex than most people recognize, so thanks for clearing some details up!

Jun 10, 2008 01:55 AM
Hope Goss
Ventura Property Shoppe - Ventura, CA
Ventura Real Estate

It sounds like you have a pretty good understanding of what's going on.  I think you are right, people will buy when they are ready to buy.

Jun 10, 2008 01:59 AM
alisa bracksmayer
camelot funding - Long Beach, NY

I think the implosion is at its end, and the market will start to stabalize, than eventually come back. I 've been in the industry for over 16 years & it always goes in cycles.  Granted this down market is unprecedented, but it will swing up again.

Jun 10, 2008 02:19 AM