If you are “floating” a conventional rate right now, you might want to contact your mortgage originator to discuss whether or not you should lock today. Typically, I don’t like to make bold predictions with mortgage rates as there are too many factors that impact their direction and traders may not always react consistently to these factors… but today I can tell you quite confidently that Monday’s conforming rate will cost more from many wholesale lenders.
Fannie Mae and Freddie Mac are revising their price adjustments (LLPA) on mortgages with a term greater than 15 years. This will go into effect on loans they purchase April 1, 2011 or later. However, this means that wholesale lenders need to make their adjustments well in advance so that by the time Fannie or Freddie buys the loan from them, the wholesale lender isn’t stuck with that price hit…not to mention, if they sell the loans prior to the April Fools increase, they’ve made some extra coin.
The adjustments range from 0 – 0.5% in fee depending on credit score and loan-to-value. For example, someone locking today with a credit score of 740 and a loan to value of 80% or higher does not have a base price adjustment. With the new LLPA, this person has a price adjustment of 0.25% in fee. On a $400,000 loan amount, this boils down to $1,000 in fee and may or may not make a difference in rate (typically 1% in fee = 0.25% in rate) depending on how pricing is at that moment.
Someone with a 680-699 mid-credit score and a loan to value over 80% will see an increase of 0.5% to fee for their conforming mortgage rate. 0.5% in fee tends to pencil out to a 0.125-0.25% higher interest rate or the borrower can pay 0.5% more in fee (discount) to buy their rate down.
Homebuyers who are putting less than 20% down payment with credit scores below 740 should make sure their mortgage professional is approved to originate FHA loans as they are well worth the consideration. As always, I strongly recommend getting started with the preapproval process early so that you can work on improving credit, if needed, as one digit lower may ding your mortgage rate.
If you or your mortgage professional are convinced that rates will be going down, then you may not want to lock. They will just need to go down low enough to compensate for the increase to conforming price adjustments (LLPA) which will be factored into the pricing of conforming rates.
When I was doing a lot of custom homes,
we paid a lot of attention to “Lock-ins”. J-
I agree rates are headed up. Lock in soon or you’ll be sorry.
I agree that locking in will be a big consideration in this next year. In my opinion banks are also going to try to “lock in” profits of new loans, and refinances.
What I think is that Real Estate is going to go back to that murky place where investors, and those that truly follow the housing market will come away with wholesale prices for property. This includes residential, but mainly our over built commercial properties.
Retail residential will be the mine field where the consumer pays dearly, and banks profit the most. This is a time to pay attention and hire professionals who keep daily, and even hourly tabs on what these volitile mortgage markets are doing.
Banks will be locking in more profits thanks to the changes to LO compensation that will take place very soon… it favors banks and you can bet your bottom dollar that any savings will not be passed onto the consumer.
Back to locking – the point of the post is that there are more “adds” to rate now for conventional loans then there was last week since Fannie & Freddie have adjusted their risk based pricing module (LLPA).
I just finished my rate post on my blog and it’s interesting to see which banks have adopted the new price adjustments and which ones have not… (this is one reason to work with a correspondent lender – we can select from all the various lenders/banks we work with).
The price difference based on a 740+credit score w/an 80% loan to value and $400k loan amount is penciling out to about 0.125% in rate this morning–depending on which bank’s rates you’re checking out.
Banks who are not yet adopting the new price hits may gain transactions from lower rates… banks who are adopting will have extra “gravy” by having higher “rebate” priced into the rates they sell to Fannie prior to the April deadline.