What is up with rates

From my in house lender at Intero Jadell Schadewitz jschadewitz@theloansource.com there is good and bad … mostly good news on the horizon…

There are greener pastures ahead of us in the Real Estate business in 2009.  As of Monday January 5th the Federal Government has started buying Fannie Mae/Freddie Mac mortgage securities at a very low price.  This action has brought tremendous support to conforming mortgage bonds this week.  The Fed plans to buy mortgage securities for the next six month and essentially force mortgage rates to stay low for that period of time.  There was talk of them doing this for 1 year, but the latest seems to be for six months.

What does that mean to you and me???  Well basically we will probably see the lowest 30 year fixed confirming interest rates in our life time.  Forget about the all time low, this will be a record breaking year.  And that means people will be buying!  Now is the time to get out there and meet some buyers in the conforming loan price range. This range is basically $695,000 and below purchase price for those with 10% down, and $781,000 purchase price and below for those with 20% down.  This is based on a max conforming/jumbo loan of $625,500.  I would be out meeting people in the price range as much as possible.

Now for the not so good news.  You and your buyers must come to expect massive volatility in mortgage rates and processing turn times for the next two months.  Here’s the problem we are facing as lenders right now.  The rates should actually be even lower than they are today, but they are artificially high due to a couple reasons.  First, is that the lenders have hemorrhaged losses and are trying to take some profit off the table while its available.  The second and most important reason the rates are artificially high is because the lenders can’t possibly handle the volume of people who want to get a loan.  So in order to slow down people from submitting applications they will increase rates.  We even saw a lender this week completely cut off locks mid day because they just can’t handle anymore.  Because of this phenomenon lenders can quote 5.0% in the morning and 5.875% in that afternoon on the same day, and thus the massive volatility.

How did it get this bad with lenders being backed up?  Well lenders have been cutting cost for the past year by laying people off.  Everyone from loan originators, underwriters, doc drawers, funders, and processors.  In addition to that about 70% of the institutions have gone out of business in 2007 and 2008.  That leaves the people left to handle all the demand, and it’s not nearly enough.  I talked to one lender who is currently doubling their staff to try to keep up.  I personally believe it will be at least two months until the lenders and staff up and get caught up with the demand.

Time to buy is drawing near my friends!