Over the last week, those of us in the mortgage business have been overwhelmed by questions from borrowers, potential borrowers and prior borrowers that all want to know the same thing, “how do I get the 4.5% interest rate for my mortgage that I am hearing about”. It’s a tough one to answer because, though there may be a day in the future, even perhaps, the near future, that a 30 year fixed mortgage at that rate is easily available to everyone, it’s not likely anytime soon. In fact, this attempt to “fix” the market is likely to have the exact opposite effect.
2008 has been the year when everyone got caught up in the challenges existing in the economy. The mortgage business, however, started seeing problems in mid 2006 (effectively chronicled here). Everyone else just got welcomed to the misery party those of us in the mortgage industry have lived through for a couple of years now. We have thankfully seen bad companies and bad loan officers go out of business previously. But in 2008 good people got washed out of the industry because there just not enough loans for everyone. Since Thanksgiving week though, and thanks to a big drop in rates from 6.25% to about 5.5% we are overwhelmed with business and could write more business in November and December (if rates stay low) than the rest of the year combined.
Well if the business is overwhelmed by the number of people interested at 5.5%, what would happen at 4.5%. If that rate was gerrymandered into the market by the government, demand would be tenfold what it is today. Estimates are that capacity in the mortgage business has shrunk by 50-60 percent since 2005 when it seemed like everyone had a relative, college buddy or neighbor who “jumped in” to the mortgage industry. It would be impossible to get everyone in and closed.
Two things would happen as a result. First is that to slow demand, the big banks would RAISE rates. This would mean that again the American consumer/taxpayer would not see that savings flow to them. The banks would keep it. Second is that only the best customers would get the best rates. With the “declining market costs” Fannie Mae has put into the market over the last two years, the salespeople will focus on the need “get borrowers/customers through the system”. This means that most salespeople will focus on borrowers with credit scores over 720, property values that ensure the loan is lower than 80% of the value, and standard W2 wages that eliminate the need to underwrite the self-employed or those who have a large portion of their income made of commissions or bonus. How this will help solve the problems that plague the housing market is beyond me, though I welcome being really busy again.
Ultimately it is impossible to guess where interest rates are going. The market will have a lot more to say about where they go than the government. Even if they do go lower, it will be challenging for anyone who does not have all three of the following to secure a mortgage at the lowest rates: Easy to understand W2 income in excess of that needed to make the payments, 720 credit scores and plenty of equity. The bottom line is that you just never know if there will be a better deal tomorrow. Even if there is, you may not be able to get it. If you can justify refinancing by recovering the cost to do so in a reasonable time, do so today.
