I've got good news and bad news...which do you want first?
OK - here's the good news. Interest rates are at historic lows, making it possible for many homeowners to refinance and improve their financial position - and combined with homes listed currently at bargain prices, those who are in the market to buy are able to purchase the home of their dreams and get a great deal.
Here's the bad news. All lenders and investors in the US have been completely slammed with the recent increase in loan applications - right at the time that many have laid off staff to save money in a challenging economy. This means that time frames needed for underwriting, approvals and closing have become longer than normal. It also means that some companies have chosen to actually raise rates, just to slow down the volume to a manageable level.
But wait - there's an answer. I know how to plan ahead and be smart, so that we can keep your rate protected. We may want to consider a longer lock period than we might normally utilize, just to ensure that your loan will be processed, underwritten, approved and closed in time to protect your rate in this extremely volatile climate.
I will also ask that you respond quickly when I request information or documentation, as the faster we can get your file submitted and approved, the better we are able to protect your rate. The best news is that we are working together - and as always, I encourage you to get in touch with me with any questions you may have at this time!
In response to the higher mortgage default rates being experienced by Fannie Mae and Freddie Mac (the largest buyers of 30-year fixed, conforming mortgages), the formal announcement of "Risk Based Pricing" was established during 2008.
Before this was announced, a 30-year fixed loan was basically the same price for any borrower with a credit score of 660 or higher and a loan amount up to 95% of the home value. But now, Fannie and Freddie require pricing "add-ons" using a matrix of credit score and loan-to-value percentages. This risk based pricing is MANDATED by Fannie and Freddie, and is required of ALL lenders originating conforming 30-year fixed loans.
Sometimes the interest rate can be increased to cover these add-ons without having to pay them out of pocket, but that is becoming increasingly difficult in today's market. Investors have changed the way they create rate sheet options, and they offer very little in the way of what is called "premium pricing", which used to allow options for closing costs or points to be covered in return for a higher interest rate. But in today's environment, sometimes the add-ons must be paid in the form of points - to either keep the rate and corresponding payments as low as possible, or sometimes because there simply is no other way they can be covered.
The bottom line is - smart consumers can't just call a lender and say "what's your rate and closing costs?" There are simply so many unknowns with the combination of credit score, loan-to-value percentages, property type, etc... that any reputable lender should be upfront, and be clear that any quote given is based on an assumption of certain parameters.
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