Archive for January, 2008

the Feds cut rate by 0.5%

January 30, 2008

Today, in a widely anticipated move, the Feds cut the Federal Funding rate by 0.5%.  Unfortunately, the news media and folks around the water cooler will translate this news into . . . “Hey, the Feds cut rates by 0.5%, have you thought about refinancing?”  or “I heard the Feds cut rates, you should not have locked-in last week.”  These two statements (and many, many, many others like them) could not be further from the truth.

As expected (and repeated through history), when the Feds cut the Federal Funding rate, mortgage rates go up.  Yes, crazy but true.  No, I am not new to the mortgage business and yes, I do know what I am talking about, and yes, I know that it sounds counter-intuitive.  But if you decided to take a gamble on your mortgage, because you “heard the Feds were going to be cutting rates this week [today],” in hopes that 0.5% cut would translate to 0.5% drop in mortgage rates, you will likely be dissappointed to see that the cut in “rates” has actually caused “rates” to go up.  note:  first “rates” = Federal Funding Rate; second “rates” = mortgage rates.

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And here is why . . . cutting the Federal Funding rate is good for the economy, that’s good news for the stock market and good news for future growth.  Future growth is bad news for inflation and fuels the fear of future inflation, and inflation is bad for long-term debt, like mortgage rates.  Inflation will eat away at the return of investors on long-term debts, so in order to preserve their future returns (versus inflation) their rate of return (and mortgage rates) have to go up.

The good news is this — today’s Fed rate cut (although causing mortgage rates to go up in the short term) may be more an indicator than an instigator.  In other words, although today’s rate cut may cause tomorrow’s mortgage rates to be 0.125% higher; the need for the rate cut (and the possible need for future rate cuts) could be an indicator that things in the US economy will get worse still before getting better . . . and while that’s bad news for your 401K and your portfolio account, it may be good news for your mortgage.  I am sure that there is some combination or words, mortgage terms and lyrics that I could create, with the whole, knowin’ when to hold em’ and knowin’ when to fold em’, etc.  But, I think with the picture above . . . you get the idea. 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

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Mortgage rates DOWN, then UP in a hurry.

January 26, 2008

Wednesday of this week, was quite possibly the most bazaar day in my 10 year mortgage career.  First, following the Fed’s surprise 0.75% rate cut (which should have caused mortgage rates to go up), mortgage rates actually dipped to their lowest levels in 2.5 years — reaching 5.0% and 5.125% for a 30 year fixed, depending on the loan size, credit score etc.  15 year rates dipped as low as 4.75%.  The anticipated jump in mortgage rates (that usually follows a Fed cut) was a day delayed . . . and Wednesday saw mortgage rates starting the day in the low 5’s, and as the stock market came back to life early in the afternoon, the mortgage market took a dive, and mortgage rates shot up 0.375% to 0.5% by the end of the day.  Investors (wholesale mortgage investors) changed their rate-sheets four and five times from noon until the end of the day, and my email inbox was filled with email notices, “ATTENTION, re-price for the worse, previous rate-sheet is no longer valid.” 

A lot of consumers missed out on the lowest rates (Wednesday morning), because they were either “thinking about things,” crunching the numbers to see what might make sense, they couldn’t get in touch with their mortgage broker, or were trying to get competing bids and good faith estimates to make sure they were “getting the best deal.”  Sadly, in an effort of good-consumerism and in an attempt to save a $100 or so in closing costs, some people missed out.

So here is my advice.  Find out WHEN you should refinance.  Spend 15 or 20 minutes on the phone with your favorite mortgage broker (for my readers in Georgia, I would narcissistically assume that would be ME), and figure out your target refi rate.  At what rate does it make sense for you to refinance — 5.25%, 5.125%, 4.75%??  Once you determine what that target rate is, now you are ready to refinance . . . maybe not Monday, or Tuesday . . . but rates may dip down again sooner than you think. 

And I hope — for me and you both — that we will see those lows again.   I leave you with this . . .

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

Cuts like a Knife . . . 0.75 point Fed rate cut

January 22, 2008

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This morning, marketwatchers, traders and the general public were caught off-guard by a surprise 0.75% rate cut by the Feds.  This rate cut is the largest since 1991 and was done to help spur on a slumping US economy and ease fears of an economic recession.  The inter-meeting cut (and the size of the rate cut) is an indication of the seriousness and need for the Feds to step in and take action.  The Federal Funds rate has a direct impact on the rate at which banks borrow and lend money, and this morning’s announcement caused banks to lower prime rate — a rate mainly used to determine rates for 2nd mortgages, home equity lines of credit, credit cards and car loans. 

On the news, the stock market started the day way down, pushing money in to the bond market (pushing the price of mortgage backed securities up . . . which may push mortgage interest rates down — which is unusual after a Fed cut).  Because most wholesale lenders don’t publish the day’s rate sheets until 10 AM or 11 AM, the real effect of today’s announcement on mortgage rates has yet to be seen.  AND, the lasting effects of today’s cut (post-market-knee-jerk) may take a day or two to sort out.

For now, I will stand by my refinance advice from my previous post for locking-in your rate and for adjustable rate mortgages (see below).

Whatever you do . . . “don’t take it all for granted, cause how were you to know . . . that rates would not always be-eeeee so low . . . yeah, cuts like a knife.” 

Let’s hope (for the sake of the US economy and for mortgage rates) that the feeling is right.  And for the sake of the readers of “the Mortgage Blog”, lets hope that this music-lyric thing ends soon.  ha!

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

ARMs . . . back then, very cool. Now, not so cool.

January 18, 2008

A few years ago, ARMs, or adjustable rate mortgages, became increasingly popular.  With most borrowers assuming that they wouldn’t live in the same house for more than 7 or 10 years, lots of people took advantage of lower mortgage rates and interest-only payments by financing their homes on a adjustable rate mortgage, or ARM.  Now, as fixed mortgages rates dip lower and lower, the idea of an adjustable rate mortgage (ARM) may not seem like the best plan.  You know, a lot of things in life seem like a really good idea at the time . . . and then, we look back and realize that they weren’t as great as we thought.  I wonder if Sylvester Stallone has ever had that feeling . . . hmmmmm. 

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You get the idea. 

And, if you don’t get the idea, kudos to you, you’re probably better off for not having spent your time watching Lincoln Hawk (a struggling trucker trying to keep his life together and win his son back by entering a national arm-wrestling contest).  And, you probably also did NOT spend a lot of time challenging your older brother to arm wrestling bouts, turning your hat around backwards and using the secret “over-the-top” Hawk grip.

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My point?

If you have an adjustable rate mortgage (even if the rate is REALLY low), now may be the best time to take advantage of locking-in on a fantastically low fixed rate mortgage.  In the past, I advised my clients to consider refinancing their ARM only if it was set to adjust in the next 12 months.  Since Fall 2007, my advice has been broadened to anyone with an adjustable rate mortgage set to adjust in the next 24 months.  And, since Monday (and since mortgage rates dipped below 5.5%), my advice is this . . . if you have an ARM, and you plan on staying in your home past the fixed-term remaining on your ARM, you should take advantage of rates and refinance.

And if you don’t . . . (big movie-announcer voice) you may one day find yourself “driving headlong towards the biggest fight of [your] life,” “because some fight for money . . . some fight for glory . . . he’s fighting for his son’s love.”  What??!!!??

Ok, if you don’t take advantage of rates and refinance . . . (no big movie-announcer voice) you could miss out on a great fixed-rate mortgage.

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

Should I lock or should I float?

January 17, 2008

The somewhat edited-to-fit words of the English-punk-rock-poets, the Clash, “Should I lock or should I float-nnnoooowwwwww . . . If you lock there could be trouble . . . if you don’t there could be double.” 

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Ah, the million-dollar question . . . it comes in a few different versions and varieties, but they all mean the same thing.  “Is now a good time to refinance?”; “What do you think mortgage rates will do over the next weeks and months?”; “Do you think mortgage rates will go up/down?”; “Should I lock-in now and protect my mortgage rate, or should I float and see what happens?” 

Translation:  I want the best rate on my mortgage (and who doesn’t).

With the best tools available, I monitor the mortgage-backed securities market to help my clients make the best-educated decision available on the trends in the mortgage market.  I give advice to lock-in when the market is unstable, un-predictable or moving in the wrong direction; and I give advice to float (not lock-in) when the chance of reward (better rates) outweighs the risks of waiting.  Inevitably, like even the best economists, the best market-forecasters, and the best weathermen (weather-people??), sometimes my advice works out perfectly . . . sometimes not so much.

So, what should you do when looking to refinance or purchase a home?  How do you decide to lock-in now or wait and see what happens?  My advice to clients (in addition to giving them market data, market trends and up-coming economic release info that may move the market) has always been this:  which would make you more upset, if we DID lock-in and mortgage rates went DOWN, or if we DID NOT lock-in and mortgage rates went UP.  Most people choose the latter — not locking and rates going UP would make them more angry, giving them a higher payment than they had hoped for and expected. 

Secondly, be content with your decision.  Yes, ultimately, the decision is to you, the borrower.  Locking-in your mortgage means that the broker has reserved money with a specific investor in your name at that particular rate . . . and in most cases, the lock-in is for better-or-worse.  If mortgage rates go UP, you would be horrified to get a call from your mortgage broker saying, “Yeah, I know we locked-in, but . . . ”  Although, I have learned to not be surprised when I get the same type of phone call on the flip-side of that analogy. 

Trust me, everyone wants the best deal on their mortgage.  And if you are willing to bail on your mortgage broker — who provided you with timely advice, who locked your rate to protect you against a volatile market, who you would have been indebted to had the market moved the other way, who has (assumably) provided you with outstanding customer service . . . if you are willing to jump-ship on him or her, because you can save a few $$ somewhere else . . .  (deep breath) . . . well, I’ll say this, you’re not the only one.  At the justification/rationalization of saving a few dollars, people sometimes make strange decisions, forget previous conversations, and quite simply change the rules — i.e. “Yes, I know I asked you to lock-in my rate, but now . . . ”

As I told a good friend of mine yesterday — who asked the aforementioned million dollar question (in a slightly different way), “Do you think this will be as low as mortgage rates go?” — I told him, “we will know for certain that mortgage rates have hit their lowest point once they go up and never come back down.”

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.