Historically, mortgage markets are boring place for everyday Americans. Over the past few weeks, however, it's been anything but boring. There's been so much news that keeping up with it all has been a challenge.To help you sort through what matters and what's trivial, I thought I'd just brain dump on you. What follows is a handful of short-burst stories and commentary on today's market.
The Float-or-Lock Dilemma: The toughest part about choosing to lock a mortgage rate is that to lock means to commit to a long-term plan whose success is highly dependent on what the mortgage market is doing this exact instant. No wonder people go limp and have a hard time making a split decision on when to pull the trigger.
Prime Rate : According to the Federal Reserve Bank of Cleveland, the Federal Open Market Committee is likely to cut the Fed Funds Rate at its Oct 28-29 meeting. This will drop credit card and HELOC rates for Americans, but should cause mortgage rates to rise. The Fed Funds Rate does not control mortgage rates.
The Treasury went flip flop: When the government announced its $250 billion plan to buy mortgage debt, rates dropped because markets expected the government to create new demand for mortgage bonds. When the government changed its mind, however, and bought banks instead, mortgage rates started to tick up and then some. Rates are up a lot this week as a result.
Mortgage rates are volatile: By the time you finish this sentence, lenders will have likely issued new rate sheets again.
Bad news for real estate investors: Private mortgage insurance companies will no longer insure new investor mortgages over 80 percent loan-to-value. Given Fannie Mae’s high fees, though, investors may want to put down 25 percent or more anyway.
3:00 PM stock market rallies: The last 60 minutes of trading each day are like last call at a college bar -- everyone rushes to get their orders in. The 3:00 PM hour has caused mortgage rates to move more than any other hour in the day by far since September.
What Do They Know?: In May 2008, analysts at Goldman Sachs predicted $200 oil. Now, it predicts $50 oil (at the second I write this, it’s currently at $70). That's some about-face. In the end, folks, remember -- experts are paid to make guesses.
Freddie Mac's stale mortgage data: Each week, Freddie Mac surveys mortgage lenders and reports back the national "average mortgage rate". That's fine, except that it takes Freddie 48 hours to compile and publish the report and rates change every 3.85 hours. You want real-time rate quotes? Talk to a loan officer, not a government group.
The 40-year cycle: We get these big market dips every 40 years or so -- 1929, 1973, 2008. We've been through them before, we'll go through them again. Long-term investing will always include short-term losses somewhere on the timeline. And there are ways to protect yourself from the down side.
The obvious truth about mortgage rates: Look, it doesn't matter how far mortgage rates fall if you can't get a mortgage approval. Underwriting is tightening so if you know you need a new home loan soon, stop waiting to see if rates fall. Just get it done.
Don't look now: But, mortgage rates have changed again.
