Don't Hold Your Breath for 4.5%!

By
Mortgage and Lending NMLS #94045

 Loannetter

DON'T FALL FOR THE FED PR: Strike While The Rates are HOT!

Last week, the Fed kept the Fed Funds Rate steady at 0 - .25%, the lowest range ever and this was no surprise.  However, they did offer some interesting thoughts, with their statement indicating that they anticipate "economic conditions are likely to warrant exceptionally low levels of the Federal Funds Rate for some time" and that "inflation pressures will remain subdued in coming quarters".  

It does appear that the Federal Reserve will continue to purchase large quantities of Mortgage Backed Securities to provide support to the mortgage and housing markets, and "it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant".   

Unfortunately, the media has already started spinning these comments to read "this means rates will continue to drop and remain there into the Summer"... thereby creating another round of fence-sitters. We have seen this strategy to be very costly to borrowers and we are warning you not to fall for more Federal Public Relations efforts. The Fed does not control private bank rates. Banks borrow at cheap rates from the Fed and they resell the money to you and I to make money.  

Many of you are asking me  "Will we get 4.5% if we wait?" While it is true that the Fed has been buying Mortgage Bonds--look at what they are purchasing: a lot of FNMA 30-yr 5.5% and 5.0% Bonds. Hmmmm.

Why is the Fed buying these Bonds?  Well if you think about it, it's very smart of the Fed... perhaps a little sneaky to buy these bonds, because 5.5% Bonds actually represent outstanding mortgages with rates of 6 - 6.50%, which are precisely the loans being refinanced today.  

So many of the mortgages in the FNMA 5.5% pools will be refinanced and paid BACK! this means the Fed will quickly recoup on some of their investment when the 6.5% crowd refiance.  And this is likely a big reason why the Fed said they could continue this purchasing program beyond June, if necessary.  So the Fed buying higher rate coupons will not necessarily get YOUR rates to 4.5%, but it should put a ceiling on how high rates can go during the near term.      

Today's Scenario: Let's say we quoted your refinance and we could save you $300 per month. So right now, you asking yourself if you should wait  for 4% and save another $30 a month. You might miss the boat!  5.0 - 5.25% is currently being offered to better borrowers --  but this changes hourly.

Also, bear in mind that as time goes on, loans are getting harder to fund! Fannie Mae and Freddie Mac are controlling loan pricing to such a degree that only excellent credit borrowers are getting these rates. Clearly, things can turn and this window of opportunity could pass you by. But even if you are correct and are able to grab that lower rate and save another $30 per month --consider that for every month you wait, that savings of $250-300 per month is being lost. So even if you do get the rate you want, it could take years to make up what you lost by waiting for 6 months or more.  Example: $300 savings x 6 months  = $1,800. That's a lot of $30 tickets! 

Shape Up your FICO Score To Save Thousands!  

The new risk-based fee charges to banks for conventional mortgages means if your FICO is below 680 you will pay more for your loan. These pricing hits apply to all conventional loans.  Even FHA and VA are becoming 'score sensitive' and setting their baselines higher. Our customers taken aback by the additional fees to either upfront points or rate. To avoid surprises, it's more important than ever to get your credit in shape! A strong FICO score could save you thousands of dollars per year in lower interest rates.  Read more about credit issues on my blog http://www.netcredit.blogspot.com  

Fence Sitters: Get Thee To a Sale!   The word is out that now is the time to negotiate  and buy a home at pre-spring pricing . I have  heard sales are starting to pick up...one house had an offer after only 2 days on the market --but that reflects, as a local Realtor noted, that it was well priced!  

PRACTICE CREDIT WELLNESS!  www.netcredit.blogspot.com Factoid: 70% of people have incorrect items on their credit report so it's best to check a few months ahead of financing in case you need to make corrections. Your report and FICO score will help us place your loan with the best lender for you: higher scores = better terms.

 Click this Credit Link to order your tri-merge lender report on our secure site. We will call to discuss your report with you. Loannetter

Washington Licenses: 510-LO-31434  510-MB-24707-50145

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SUSAN TEMPLETON IS A LICENSED LOAN ADVISER IN WASHINGTON

NMLS# 94045

                 

 

Interest rates and products are subject to change without notice and may or may not be available at the time of loan commitment or lock-in. Borrowers must qualify at closing for all benefits. Loannetter is a private brand owned and copyrighted by Susan Templeton.

 

 © 2005-2015 susan templeton copyright

 

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It's all about them (ThemThem)
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Ambassador
554,125
Larry Story
Total Care Realty - Greensboro, NC
Total Care Realty, LLC, Greensboro, NC Real Estate

You hopefully they will wake up and realize that the bottom is already here.

Feb 03, 2009 01:30 PM #1
Rainer
31,194
Loren Johnson
White Bear Lake, MN
CMPS

Great post...and so true!! It's sad that clients keep thinking "I should wait for 4.5%"....and when it hits there, they'll want to wait for 3.75%!

Feb 03, 2009 01:35 PM #2
Rainmaker
278,337
Dom Naidoo
Westside Properties - Venice, CA
Malibu to the Marina Real Estate

Here in Los Angeles Westside, the bottom is "here" seems to be the consensus. All the best.

Feb 03, 2009 01:38 PM #3
Rainmaker
2,563,396
Charles Stallions
Charles Stallions Real Estate Services - Pensacola, FL
800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl.

Wow you give the FEDS too muc credit, the're not smart enough to buy something and make money. Their buying so that a year from now they can sell them back to the banks they bought them from at half of what they paid. Then the banks will double their money and be forgive for the bailout money.

Feb 03, 2009 01:39 PM #4
Rainmaker
22,907
Treva Fox-Christy
INTEGRITY REAL ESTATE - Farmington, NM

So many consumers wait until its on its way up and then it is too late. We have to get better at educating our clients. Thanks

Feb 03, 2009 01:41 PM #5
Rainmaker
66,965
Susan Templeton
Bellingham, WA

Larry, It's tough to call a bottom since there are so many factors. Our rates change 3 times a day and different lenders are more impacted depending on where and what they invested in (funded mortgages). Thankfully, the risk is spread for most lenders (except local banks) so we look a pretty good risk in the Pacific NW even though our area may not have bottomed yet.  Hey--I've got family in Greensboro..say hi!

Feb 03, 2009 06:05 PM #6
Rainmaker
66,965
Susan Templeton
Bellingham, WA

Loren, You are correct. Nothing will be low enough as long as the Fed keeps pushing their near zero lending rates to the banks. Consumers feel disgrunted. I wonder why they tout the Fed Rate when it's so misleading?

Feb 03, 2009 06:08 PM #7
Rainmaker
66,965
Susan Templeton
Bellingham, WA

Dominic, Is LA suffering because of the statewide financial distresses? Can't help property values with so much bad press. I sure hope the "MisUnderEstimator" finds a way! (sorry couldn'g help myself)

Feb 03, 2009 06:10 PM #8
Rainmaker
66,965
Susan Templeton
Bellingham, WA

Charles, somebody needs to give the Feds credit...maybe they will return the favor?

Feb 03, 2009 06:11 PM #9
Rainmaker
66,965
Susan Templeton
Bellingham, WA

Treva, Yes the problem with consumers waiting is that we get the sudden deluges of panic that send us into stress and underwriting overload. I think building trust is the hardest thing to do in our business and yet it's the most important thing we can do.

Feb 03, 2009 06:13 PM #10
Rainer
1,465
Jose Santos
Casa Latino A.T. - Concord, CA

 

True, It seems like everyone is just waiting, hoping it goes lower, but before you know it... The rate will be up again. Now is a great time to take advantage. Good Post. Thanks.

Feb 09, 2009 04:12 AM #11
Rainmaker
66,965
Susan Templeton
Bellingham, WA

Thanks Casa, We are seeking recent rate increases this week and lots of people sitting on the sidelines right now pending the Stimlus Bill being passes (or not)...expect enthusiasm on Wall Street to transalte into higher rates! (Spring does that also). Regards, Susan

Feb 09, 2009 09:31 AM #12
Rainmaker
291,454
Kate Bourland
Marketing with Kate - Redding, CA
Onlilne Marketing Mobile Marketing

The current rates cannot possibly be sustained for the long haul.  I don't get the fence sitters.  If you're ready to buy a home and you can financially sustain it for the long haul, buy it. 

Why do we try to predict and time the market.  If rates drop, then refinance, if the rise, than you made a good bet.

 

Feb 25, 2009 05:21 PM #13
Rainmaker
66,965
Susan Templeton
Bellingham, WA

I couldn't agree more, Kate! We are able to secure terms for the committed given time and patience. It's pretty hard to help rate shoppers who 'want it all now'. Is your firm handling Modifications now given the details pending on the Rescue Plan?

Feb 26, 2009 10:17 AM #14
Anonymous
Jimmy

Very useful information, have you syndicated it at http://www.realestateloans.com?

Feb 27, 2009 12:09 PM #15
Rainmaker
66,965
Susan Templeton
Bellingham, WA

What do you mean by syndicated, Jimmy? I own the copyright to all my blogs, naturally. Thanks for the tip...I'll take a look!

Feb 27, 2009 12:34 PM #16
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