BLOG: Today Is Still a Great Time to Buy or Refinance

It's the good, the bad and the ugly of current mortgage rates.

The Good

Rates were lower, seventh day in a row since Sept. 13!

Is this mortgage heaven? Hardly, but it really helps

Chairman of the Federal Reserve, Ben Bernanke’s announcement on Sept. 13 was good news for the mortgage industry. It was a decision to further support the economy and employment growth. He offered to purchase more mortgage-backed securities this third quarter of 2012, but he also said that he will continue to purchase these until there was a real positive effect to the economy. Wonderful!

Mortgage-backed securities quickly rallied last Thursday, causing mortgage rates to drop again and again.

The Bad

Most mortgage lenders generate more money to lend by bundling pools of loans and delivering them at a certain price. Mortgage lenders lock these pools of loans ahead of time and promise investors the delivery of these loan pools at a certain interest rate. 

Most lenders do this by closely managing the loans in their pipeline and predicting how many of these loans will fund and be bundled for delivery at a certain time. Lenders lose money if the rates drop dramatically before they deliver these loans to the investors because borrowers want the lowest rate available at the time they are ready to lock their loans' interest rate and this rate may be lower somewhere else.

Now the lender is in a predicament. … Rates are lower so they need to decide to either lower the rates and lose money at the time they deliver these loan pools or they don’t lower the rates and they deliver a smaller pool to the investors when borrowers go elsewhere. The lenders have to make up for this loss, eating the costs. This serious loss may be why some lenders did not adjust as much as others.

The Ugly

Fannie Mae and Freddie Mac, keep losing money on foreclosures, in some states more than others, in this case Connecticut, Florida, Illinois, New Jersey and New York. So they have increased their guarantee fee (g-fee) by a ½ point. Ouch! They are buying better loans that are performing better, but they are not yet out of the hole from all the foreclosure losses. FNMA and Freddie announced that they will increase their delivery fee by an additional .50 points (1.00 equals 1 percent of the loan amount) to pay for these additional costs.

The end result

Most mortgage lenders have already adjusted their interest rates. And yes, they are lower than two weeks ago. If you are not seeing rates in the 2s today… well then read the Bad and the Ugly above and you will understand why rates did not hit that low even after Bernanke’s  announcement.

Happy mortgage hunting!