March 5 Mortgage Update

March 5 Mortgage Update

Mortgage rates have moved up slightly from last week. The much-anticipated details of the foreclosure prevention plan that were announced yesterday had little material effect on markets.

In years past, we detailed a lot more loan programs and loan cost options, but with the current banking crisis, the current mortgage world has become “commoditized” in this respect. Since most banks either to not have the liquidity or the risk tolerance to offer loans that are not purchased or guaranteed by the Federal government, all they offer is Fannie/Freddie or FHA conforming product, with the 30-year fixed being the benchmark program. Another huge change in mortgage pricing over the last 60 days that will probably continue well into the future is “price compression.” In years past, investors offered fairly consistent rebate pricing, which enabled us to offer 0 point and 0 pt//0 closing costs options. However, because of prepayment risk, investors have severely restricted rebate pricing. This prepayment risk arises when long term loans are paid off early when rates drop and also, unfortunately to some degree caused by banks and brokers churning loans in the past. At present, this has resulted in borrowers almost always paying their own closing costs and usually some % of points.

A note about JUMBO mortgages, they are still available, however expect a 30% down payment for the best-priced loans.

Where eventually loan programs and choices will come back, timing and execution are the critical elements now in providing superior service to clients. With timing, we have seen conforming rates trade between 4.75- 5.25% at par for much of the past 90 days. A great majority of the time, they have been at the higher end. However, by watching the market diligently during the course of each business day, we have been able to time most of our locks at or near the 4.75% mark. Execution is critical, as underwriting and communication has never been so constrained with all the investors. A client should know that her/his file is receiving daily attention to make sure close and lock deadlines are being met.