Mortgage Rates on the Move Up Today…way up.
Rhonda Porter on 05 27, 2009
What a doozy. I was literally on the phone with a client advising her to lock and once she agreed, I went through a price change while locking the rate on-line with the lender. It happens. I had quoted her 4.875% with 0 points and wound up moments later locking her in at 4.875% with 0.5 points for her purchase. Normally I’ll contact a client if rates available are not what I quoted. She’s a friend who trust my advice (1) and (2) rates were deteriorating so quickly that I did not have time to call her. By the end of today, her rate scenario of 4.875% would have cost 1.5-2 points (total).
Here are all the rate changes I experienced with one of the lenders I work with based on 4.875% 30 year fixed and a 30 day lock with 740 credit scores, $400k loan amount and 80% loan to value.
8:00 CT: 4.875% cost 0.5 points ($2000 based on a $400k loan amount). Next rate sheet issued 45 minutes later at…
8:45 CT: 4.875% cost increases by 0.068 points (not huge…most mortgage originators would absorb this and not pass it on to the consumer). Just shy of 45 minutes later and we have a new rate sheet…
9:25 CT: 4.875% now cost 0.75 points ($3000).
Lenders panicked for a while this afternoon… I think Dan Green summed it up great via a Tweet on Twitter:
A lender just sent notice, paraphrased: “Rate sheets are suspended for now. We’ll send a new one to you once we figure out WTH is going on.”
1:05 CT: 4.875% now at 1.50 points ($6000). This lender’s last rate sheet of the day was issued at…
2:40 CT: 4.875% wound up costing 2 points ($8000)…or you could have 5.375% with a half point with this specific lender.
It will be interesting to see how deep the Treasury digs into their remaining allowance for purchasing mortgage backed securities following the movement in mortgage rates today.
I’ve always thought of the “dog with two bones” story I was told as a child when potential clients are hoping for a rate slightly lower than what is currently available. Locking and floating your rate are gambling. If you lock your rate, you’re betting that rates will deteriorate; if you’re floating your betting rates will improve. Either way, consider worse case scenario: how will you feel if you lock and rates improve or if you don’t lock and rates climb?
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22 Responses to “Mortgage Rates on the Move Up Today…way up.”
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Ouch. That’s going to leave a mark.
If the Ben and Tim Show can’t get a handle on this, and quick, we are looking at a catastrophic disembowelment of every asset class in the world, especially in the dollar denominated assets.
I guess we have learned what happens when you pay off your MasterCard with your VISA. Eventually, the credit makers cut you off.
One report that I read is that 50% of the loans in the pipeline may not get to close. I will admit that I need to drill into it harder, but if 50% get puked back on the market, along with all the other stuff that is going up for sale, these higher rates are going to make it difficult to move deeds.
20cents on the dollar by 2010.
Hey Eleua, which report are you referring to?
“One report that I read is that 50% of the loans in the pipeline may not get to close. I will admit that I need to drill into it harder, but if 50% get puked back on the market, along with all the other stuff that is going up for sale, these higher rates are going to make it difficult to move deeds.”
It was some chatter by people in the mortgage biz. I’ll need to read what they said in more detail.
It wasn’t something on Bloomberg, or the WSJ.
Sorry if that was misleading. All I am trying to convey is that this has the potential to be highly disruptive in the pending sales part of the market, and people close to the situation are painting a very dire picture.
Some folks in the mortgage biz may be having tougher times than others with getting loans closed…and that can be hard to define… for example, did they take on a loan without researching or staying current on guidelines, and then not have it close. Loans need to be qualified or disqualifed upfront.
The biggest issue that I run into is appraisals…more so with refi’s than purchases.
Thank you for the rate information.
Yes this could cut the market short if it continues. The fear factor alone must be unsettling.
The Calculated Risk blog discussion on this:
http://www.calculatedriskblog.com/2009/05/mortgage-rates-moving-higher.html
and
http://www.calculatedriskblog.com/2009/05/record-high-yield-curve.html
The quote that stuck out to me (from the first link above)
“Based on this historical data, a Ten Year yield at 3.7% suggests a 30 year mortgage rate of around 5.6%”
I think the problem with the analysis on CR was that historical spreads relied on an implicit rather than explicit gov’t guarantee of mortgage-backed securities. It should make sense that the spread should narrow.
Of course, that guarantee, explicit or implicit meant something…
… once upon a time
i guess we are on the verge of more price drops if this doesnt shore up. normally, id say fine by me, but the raising interest rates will end up eating the difference.
It happens rates get knocked off once in a while. You just have t follow bond market and 10 yrs yields and find an opportunity to lock in. Today was bad, but few days later it could be business as usual.
fillmore, as a purchaser, I would still rather see lower prices at a higher interest rate. That gives me a chance to refi “someday” (likely a long long long time from now with the prospects for prolonged inflation) and means I have a lower initial outlay of cash for the down payment.
The worry (again, for a purchaser) is if rates go up faster than prices go down, leaving buyers with less buying power till the market catches up. Luckily here in Seattle rents are also down in many areas, so continuing to wait to see what happens isn’t that tough for many people.
Thanks for the heads up Rhonda! Not surprising, but the mid-week update is appreciated.
Gene
Thanks, Gene! BTW right now, 30 year fixed @ 5.125% would cost 1 point (apr 5.370) based on the criteria I use for Friday’s Rates…which I’ll be posting here tomorrow…should be interesting!
Rhonda,
Good post. Yesterday was one of the wildest days I have ever seen in the rate market. I tried to convince a client to lock her loan at 9:00 am at 4.875 with 1 point. She said she had to think about it… I left several messages on her cell phone everytime the lender we selected raised their rate but she didn’t call back until almost 5 and by that time the damage was done. We will probably put her in a 5/1 ARM for qualification purposes. Those rates look pretty good right now and the ARM will actually fit into her long term plans with the property.
It was a ugly day and those who held out for that magic lower rate really lost out. Better to have a bird in the hand and lock these days.
[...] For a local insider’s perspective, check Rhonda Porter’s post over at Rain City Guide: Mortgage Rates on the Move Up Today…way up. [...]
Rhonda, what’s going on today with rates? More of the same or have rates stabilized a bit?
Cathy, would an ARM be a risky bet if rates are headed upwards?
Jillayne,
This client does not plan to keep this property beyond three years. I would have never recommended an ARM to her if she were planning on staying there longer.
Hey Jillayne, I posted rates at comment 10 and I’ll have updated rates posted here tomorrow.
Jillayne, now that rates for ARMs are so attractive, I’ve started posting them on my Friday Rates…if a borrower is only planning on retaining the mortgage for a short period of time, as Cathy says, it could make sense. Mortgage professionals show and inform clients the possible options based on their circumstances and allow the consumer to (hopefully) make an educated choice.
Rhonda,
Good stuff. The one thing that I like to add when discussing an ARM with a borrower is to ask them this question:
If interest rates were at 12.0% when you are planning on refinancing, selling, cashing in investments and paying off this mortgage, would you still sell, refinance, etc?
Buyers need to realize that they might find themselves in a situation where they are “stuck” with that mortgage and then analyze whether the rate differential is worth it.
Just my 2 cents worth.
Tom
Rhonda:
Thanks for the midweek post of rates.
It has been a gut wrenching week to say the least
These days, unless we have explicit authority to lock on a moments notice without prior consultation, it’s hard to nail these down, as rate sheet changes begin filling our inboxes (IF we get notice).
FHA rates seemed to be a bit less volatile (are you seeing that, too), and ARM pushers touted their “unchanged” rates.
Regarding ARMs, I’m not so sure I could recommend them…many people have/had plans to sell properties that may not be as liquid as once thought, both now, and in the future. Still, like Rhonda says, we should be presenting all available options to clients, and letting them make informed decisions.
While there are plenty of opinions, I’m pretty confident that interest rates in 5 yrs are going to be considerably higher, both for fixed rates and for underlying indexes on ARMS. I don’t know if they will be at 12%, depends on whether the gov is still trying to hold them lower. Eventually, the market floods in, and trumps govt policy/spending.
Regarding Eleua 50% not closing (#2)? I think that is about the average projection for normal fallout, in a refi heavy market. Purchases usually fare much better, but these days, with close to 50% of purchases being short sales and foreclosures, I’m sure the fallout ratio is higher on those as well (we have to wait for bank approval, if it ever arrives).
A lot of LOs and lenders operate on a “throw it on the wall and see if it sticks” methodology (for refis). I don’t operate that way, and I’m sure Rhonda doesn’t either. No LO that truly cares about their clients interests would, but it can make sense economically for an LO/lender to operate that way.
I predict we’ll see an increase in fallout ratios in the next few months, as HVCC begins to show it’s effects, in both lower prop values, and difficulty in moving appraisals around as needed.
BTW, Fallout ratio=Closed loans/completed applications.
Rhonda, you may want to insert link to one of your HVCC threads, so folks have a clue about HVCC.
Rates are getting better…fast!
Folks, if you are in the middle of a refi, floating, call your LO, and monitor the situation!!
Should you lock now?
As always, consult your mortgage professional…
Cathy,
That is one brave buyer you have, if they are planning to purchase now and sell within 3 years – or they must be getting an incredible price on the property. I have a tough time seeing the finances work out well for that considering closing costs, taxes, and home prices quite possibly being flat over that time period (unless it is a fixer, and they plan to fix it).
Gene
We locked into a fixed product this afternoon. But, like Rhonda says, I do need to point out all of the options available and thank goodness rates improved today!
Tom, that’s a great point. A down side to ARMS is that although home owners might intend to move before the ARM’s fixed period is over, they might find themselves in a situation where they cannot. Our current economy is a classic example. We have home owners without jobs and/or in a home that doesn’t appraise for what they bought it for (or for what they bought for 5 years ago but they added a second mortgage) so they don’t have enough equity to refi.