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The Unexpected “Tax” That The Refi Boom Places On Borrowers

On December 23, 2008, in Mortgage Educational Information, by admin | Comments

Underwriting turntimes plus the Holiday Season put 45-day rate locks into focusIn late-November, the Federal Reserve pledged $600 billion to buy mortgage-backed securities.  The announcement drove down mortgage rates and started the Refi Boom.

Then, the Federal Reserve made a second series of statements after its scheduled meeting last Tuesday, causing mortgage rates to plunge again.  This started the Refi Boom’s second wave.

Because of the surge in refinance activity, mortgage lenders are “backed up”; initial file reviews are taking up to 12 business days in some cases. 

Typically, this process takes 2 days.

Underwriting delays are problem for refinancing Americans because when a mortgage rate is locked, it’s most often locked for 30 calendar days — the standard Rate Lock Agreement contract length.  If the mortgage doesn’t close within those 30 days, the applicant must either pay an “extension fee” to preserve the lock, or risk losing the rate altogether.

30 days may seem like a long time, but let’s consider a few external variables:

  • December 24, 25, and 26 plus January 1 and 2 are lost to holiday
  • December 27, 28 plus January 3, 4, 10, 11, 17, and 18 are lost to weekends
  • January 19 is lost to federal holiday
  • 3 days are lost to the Right To Cancel clause

This leaves 13 days to get from Application to Closing, and of those 13 days, 12 of them are being spent on the initial review.  A 30-day rate lock, in other words, may be an inadequate agreement with some mortgage lenders.  A 45-day agreement may be required instead.

Typically, 45-day rate locks carry higher rates or higher fees, versus their 30-day counterparts.  This amounts to a “tax” on borrowers, a result of the nation’s rush to refinance en masse.

As always, the best way to preserve a rate lock is to be as responsive as possible to the process.  Return paperwork when asked, schedule appraisals immediately, and arrange to signing closing paperwork on the first available day.

With mortgage rates low, application volume — and underwriting turntimes — should remain high into early-2009.

With the exception of Sunstreet Mortgage. We have in-housing underwriting and can get things done quickly so give Tyler Ford or Todd Abelson a call at 520-331-LEND (5363).

Is The Federal Reserve Telegraphing Its Next Rate Hike?

On June 11, 2008, in Interest Rates, Market News, by Tyler Ford | Comments

The Federal Reserve is stumping hard on inflation this week, creating speculation that Fed Funds Rate hikes may be in store for later this month. 

This is a counter-intuitive development because increases to the Fed Funds Rate are typically associated with periods of rapid economic expansion. 

There's a growing belief among Fed members that a strong dollar would be good for the economy Lately, we’ve seen anything but. 

Witness:

Despite the downbeat news, though, multiple Fed members are taking a hard line on inflation, adding that a strong dollar support the economy and help to offset high oil prices. 

A rate hike could help accomplish that goal.

If the Federal Reserve votes to raise the Fed Funds Rate, Prime Rate will rise in tandem.  Prime Rate is the basis of interest rates for credit cards and home equity credit lines.  Holders of each debt type, therefore, would face higher monthly payments.

Mortgage rates, by contrast, would be expected to fall, but how the market would actually react to a rate hike is anyone’s guess.

The Federal Reserve meets 8 times annually.  Its next meeting is a two-day affair beginning June 24.

(Image courtesy: The New York Times)

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How Mortgage Rates Benefit From 3 Months Of Worsening Employment Data

On April 4, 2008, in Mortgage Educational Information, by Tyler Ford | Comments

March's monthly loss of 80,000 jobs is the largest since March 2003 and follows January and February's losses of 76,000 each.

For the third month in a row, the economy shed jobs, suggesting that the U.S. is in a recession.

March’s monthly loss of 80,000 jobs is the largest since March 2003 and follows January and February’s losses of 76,000 each. 

The weak data is edging mortgage rates lower as we head into the weekend. 

The connection between poor jobs data and today’s falling mortgage rates is a little bit strained, but worth discussing.  It all comes down to expectations.

Prior to today, there was an expectation that the Federal Reserve’s recent rate cuts would over-ignite the economy sometime this Summer.  The Fed has cut 3 percent from the benchmark rate since September 2007.

Meanwhile, consumer spending makes up two-thirds of the economy and people can’t spend if they don’t earn.

So, after today’s report showing fewer workers (and falling confidence levels to boot), the largest component of the economy is expected to sag for a while. 

This lack of spending should offset the cumulative impact of the Fed’s rate cuts and lowers the expectation for runaway inflation later this year.

Now for the connection: If inflation causes mortgage rates to rise, it’s the absence of inflation that causes them to fall. 

And that’s precisely what we’re seeing today.

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