Ben, the Fed and Mortgage Interest Rates [Live Post]

June 22, 2011 by Leave a Comment

Today the Fed will announce if they're going to change the Fed Funds rate. It's highly anticipated that they will leave the rate where it's currently at.  What ever action the Fed takes does not directly change mortgage rates, however it does have a strong INFLUENCE on mortgage rates.  Following the Fed's announcement, Ben Bernanke will be holding a press conference which may also impact mortgage rates. Remember, mortgage rates are based on mortgage backed securities (bonds) and inflation will drive mortgage rates higher.  

This is a live post to illustrate how the Feds actions may impact mortgage rates, assuming the markets don't shrug off the information.

As of 9:00 am this morning, prior to the Fed's monetary decision and MBS (FNMA 30yr 4.00%) are up 34bps.  What you and I probably relate to more than mortgage backed securities (MBS) are how this translates to mortgage rates. 

I can lock in a 30 year fixed at 4.375% (based on the criteria I use for rate quotes) with a discount of 0.198% (apr 4.503).  

5/1 ARM is currently at 2.875% (apr 3.256) with a discount of 0.043%.  5/1 ARM is fixed for 60 months and has caps of 5/2/5.  The highest this rate can be at the 61st payment (or the life of the loan) is 7.875%. 

11:10 am: we're minutes before Ben Bernanke's news conference.  Mortgage rates that I've quoted are unchanged.

9:25 am: DOW is down about 7 points.

"No change" to interest rates is announced.  The Feds Funds rate is unchanged at 0 – 0.25%.  Good news to those who have home equity lines of credit which are based on the prime rate, they've dodged another bullet!

Initial reaction: markets seem unmoved. No real surprises in the FOMC press release.

9:31 am: Receiving an intraday rate sheet with pricing for the better from one of the lenders we work with.  This lender did not have as competive pricing as what I quoted above (they're still far from it) as the began the day with worse pricing. The rate quotes above is still current pricing that I have available.

9:50 am: In just over an hour, we'll hear from Fed Head, Ben Bernanke.  Stay tuned. I'll continue to share rate updates and updating this "live" post.

10:30 am: MBS down to session lows at 15bps for the 30yr.

11:10 am: minutes before Ben Bernanke's news conference and mortgage rates are unchanged from what I've quoted above.  DOW is up 7.46.

12:15 pm: Ben Bernanke has wrapped up the news conference.  MBS are up slightly to 22bps with the DOW down 32. Mortgage rates and pricing that I quoted above are unchanged.

I listened to as much of Bernanke's conferene as I could while I was work on my day job, originating mortgage on homes located in Washington.  Some bits that I extracted (and shared on Twitter) are that Bernanke referred to the pace of unemployment being "frustratingly slow".  During the Q&A he said that "we don't use words like "extended period" to be intentionally opaque, it means that we really don't know how long".  Regarding housing, he commented that "those who can get credit, can buy a lot more house than they could a few years ago" referring to low rates and affordable home prices. He would like to see further efforts from mortgage servicers to modify loans when appropriate and to speed up the foreclosure process when appropriate.

DOW closes down 80.34.  

Filed Under: Interest Rates, The Fed - FOMC

This Week Could be a Doozie for Mortgage Interest Rates

April 25, 2011 by Leave a Comment

In the past, I've included the scheduled events that may impact mortgage interest rates in my rate weekly rate post.  However, this week is so packed data that I thought it was worthy of a post all its own.  Check this out (items that are bold tend to be the may be the most influential to rates):

Monday, April 25:  New Home Sales

Tuesday, April 26:  Consumer Confidence

Wednesday, April 27:  FOMC Meeting and Durable Goods Orders

Thursday, April 28:  Gross Domestic Product, Initial Jobless Claims, GDP Chain Deflator and Pending Home Sales.

Friday, April 29:  Personal Consumption Expenditures and Core PCE, Employment Cost Index, Chicago PMI and Consumer Sentiment Index (UoM).

Wednesday, we'll learn if the Fed's interest rate decision and possibly gain clues as to their plans with QE2.  Ben Bernanke is going to be having a news conference following the FOMC meeting which many will be tuned into hoping for clarity on his views of the direction of our economy.  You can see the entire week offers plenty of data to be digested.  

Remember, mortgage rates are based on mortgage backed securities (bonds) and are not set by the Fed.  Mortgage rates may are impacted by how MBS are being traded on the bond markets.  When the stock market is rallying or there are signs of inflation, mortgage rates tend to raise higher.  When the stocks are tanking, investors will often seek the safety of bonds which will cause rates to move lower.

Whether or not you should lock or float (not lock) your interest rate depends on your personal risk tolerance.  My general stance is that if you like the rate that is currently available – you should consider locking.  Decide which scenario is worse for you: losing today's rate by not locking or locking todays rate with a rate drop tomorrow.  Please discuss this with your local mortgage professional.  I am a NMLS Licensed Mortgage Originator dedicated solely to Washington State.    If you are interested in a mortgage for a home located anywhere in Washington State, I am happy to help you.

NOTE:  I plan on posting mortgage interest rates today.  Stay tuned!

Filed Under: Economy, Events, The Fed - FOMC

The Day After the Fed’s Rule on Loan Originator Compensation

April 6, 2011 by Leave a Comment

Poker Like it or not, the Fed’s rule on how mortgage originators can be compensated is in full effect today.   It’s hard to tell exactly how much this has impacted mortgage rates as mortgage backed securities are being beat up pretty hard from fears of inflation (rates would be higher today regardless of the Fed’s rule).

[Read more…]

Filed Under: Rant, The Fed - FOMC Tagged With:

Survey Says: Consumers Do NOT Want Higher Mortgage Rates

April 3, 2011 by Leave a Comment

I posted a survey last week with three questions regarding loan originator compensation for people who either have or who are considering obtaining a mortgage.  Here are the results as of 7:20 this morning (click image for a better view).

LOComp1 

80% of those who took the poll would rather allow their mortgage originator to have the freedom to price rates as they choose and to be able to use their commission to help with cost after locking (typically at closing).

20% would rather that rates were detached from the LOs commission and are willing to pay a slightly higher rate in order to have this "protection" and have the LOs commission restricted from being allowed to go towards any cost.

The results are overwhelming.  Consumers would much rather leave mortgage originator compensation alone.  They do  not want government interference with how a mortgage originator is paid.   Many mortgage originators do not want this rule either even though many will actually receive a "raise" since their commission will be fixed (no pricing leaning on an easier loan) and their commission is forbidden to be used in the transaction for anything (including helping out paying for an extension or other closing cost).

The Fed's Rule on "LO Comp" has been delayed by dramatic intervervention late Thursday (the eve before the the rule was to go into effect) by the U.S. Circuit Court.  We should have more information this Tuesday.

As of right now, you'll find that some mortgage companies and banks are proceeding with the rule and others are holding back until more is learned on Tuesday.  This can make a significant difference in your interest rate so you may want to check with your mortgage originator if you're locking on Monday if they are proceeding with the Fed LO Comp rule or not. 

Mortgage Master Service Corporation is delaying following the Fed Rule on LO Comp until we learn more on Tuesday from the Circuit Court Judges.   This means that I have freedom to price and lock your rates as I see as "fair" for at least one more day.

I will be posting mortgage rates tomorrow morning on my blog "as usual".  It could be my last mortgage rate post where I'm able to quote rates based on how I want to price them.

Related post:

The Feds Loan Originator Rule is a bad April Fools Joke on You, the Consumer

Filed Under: Polls, The Fed - FOMC

Mortgage Loan Originator Compensation Changing on April Fools

February 25, 2011 by 2 Comments

I’m going to start this post by saying I can bet certain people are going to chime in that this needed to happen and LO’s will still thrive and do fine…and I can also bet that those who will sing that song have not recently been a mortgage originator.  They may be exposed to mortgage originators from being employed in the real estate industry, but in my opinion, they are “arm-chair quarterbacks” at best.  Enough said…on to my post.

Effective April 1, 2011 rules regarding how mortgage originators (anyone who takes a residential loan application) may be compensated will be implemented.  Currently most mortgage loan originators (MLO) are paid by the consumer (points), by the wholesale lender (rebate pricing) or a combination of both.  MLOs may also be paid a salary and receive additional compensation based on volume (many banks pay this way).  These rules are created by the Fed through modifications to Reg Z.  Even though the rule goes into effect on April 1, 2011; lenders will probably enact deadlines in advance (sometime in March). 

It’s no surprise to me that there are two different sets of rules based on if the mortgage loan originator is employed by a bank or true corresponent lender (like Mortgage Master Service Corporation) verses a mortgage broker.  MLO’s who are employed by a bank or true correspondent are not paid directly by the consumer, they are paid by their employer (also referred to as the “creditor”).  Mortgage Brokers are once again kicked in the teeth with the changes to Reg Z.  I do wish we all had the same set of rules (including all being licensed) as consumers should not have to determine the type of originator and varying set of the regulations that apply.

Mortgage Brokers will no longer be allowed to receive “dual compensation”.  This means that MLOs employed by a mortgage broker will only be able to recieve compensation paid by the consumer OR paid by the wholesale lender.  Let’s say that today, a rate priced with zero points is 5.000% (rebate pricing is 1 pt to the broker) and priced with 1 point origination fee paid by the consumer buys the rate to 4.75% (zero rebate from the lender), a mortgage broker could offer these scenarios.  If the consumer decided they would like to have the rate of 4.875% and are willing to pay 0.5% in origination fee with the broker receiving 0.5% from the wholesale lender in rebate, this is not allowed per Reg Z.  From my understanding, retail mortgage loan officers (employed by banks and true correspondents) will still have this option because the consumer is not directly paying the mortgage originator.  I’m very thankful that I work for a correspondent lender, however it’s really not fair for the mortgage brokers.

Mortgage Loan Originators may not be paid based on the terms and conditions of the loan.  The loan amount is not considered a term or condition however the interest rate is.   This rule also prohibits “steering” a consumer to lender offering less favorable terms in order to increase the loan originator’s compensation”.  

Owners of mortgage companies are currently scrambling trying to figure out how to compensate their mortgage originators.  

In my opinion, changes to RegZ seem to favor how many big banks have been paying their mortgage originators: volume.  How does a consumer benefit when the MLO who is taking care of their purchase or refinance is compensated by how many loans they can close in a specific period of time?  Banks will continue to pay their MLOs less per transaction as they complete as many loan applications as possible as they sit and wait for next trusting bank customer to walk into the branch.  In my opinion, banks want to pull the industry (quality of mortgage originator) down to their level so they have less competition.

I’m wondering which industry will our government get into next to control how one is paid?  With what’s gone wrong in the housing industry, are the commissions paid to a real estate agent low hanging fruit?

Related post:

If your bank doesn’t charge an overage or points, what do you call this? 

How am I paid? (2007)

Filed Under: Mortgage, The Fed - FOMC

The Fed Leaves Rates Unchanged

September 21, 2010 by Leave a Comment

It was widely expected that the FOMC would not make changes to the Fed Funds rate today…and that's what happened. 

Here are excerpts from the FOMC statement today:

"Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit…. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months…"

You can read the entire press release here.

If you have a home equity line of credit, your rates should be remaining the same (for now).   Other than loans attached to the prime rate, mortgage rates are not directly controlled by the Fed.  Mortgage rates, however, may be influenced by the actions of the FOMC.   Mortgage interest rates are based on bonds (like mortgage backed securities).  Investors reacting to the FOMC may impact mortgage rates.  Fellow mortgage blogger, Dan Green, has authored an excellent post: The Federal Reserve May *Influence* Mortgage Rates, But It Doesn't *Set* Them.

Mortgage rates remain at very low levels.  As the economy improves, we will see rates trend higher.  Inflation will also cause mortgage rates to rise. 

If you're a home owner (primary or investment) in Washington state, I highly recommend contacting your mortgage professional to see if refinancing today makes sense for you.   If you haven't heard from your mortgage originator in the past few months, it's possible they may no longer be originating as many have left industry.  I'm happy to adopt your mortgage and you as a client, regardless of if you refinance or not.

Filed Under: The Fed - FOMC

Poll: How would you prefer to have your mortgage originator compensated?

April 5, 2010 by Leave a Comment

How a mortgage originator is compensated is being reviewed by the Federal Reserve and Washington State's Department of Financial Institutions (DFI).   The traditional method of being paid based on a percentage of the loan amount is getting some heat.  It's unfortunate because I do believe a majority of the bad actors are no longer in the mortgage industry thanks to the SAFE Act and licensing requirements.   Those who do not want to be held to the licensing standards and who want to stay in the mortgage industry will have work for a bank, where they are only registered.  Many banks are limiting what and how a mortgage originator "appears" to be paid to the consumer.  (Only mortgage brokers have had to disclose their compensation on the back end).   

Currently, a consumer can have their mortgage priced with an origination fee (points) or without points, which means rebate pricing is being used to compensate the originator.  The loan does not have to be priced with a full 1% of the loan amount, if you look back at even recent rate post at Mortgage Porter, you'll see that sometimes I quoting 0.75% for a certain rate–it all depends on where the markets are at that moment.

I would love to hear back from my readers how you feel mortgage originators should be compensated.   I will be leaving the poll on left side of my blog during the month of April.   Please vote and feel free to leave your comments on this post.

I'll be sure to share the results with you.

The choices in this poll are:

Flat Fee:  My opinion is that if mortgage originators are forced to go to a flat fee.  Mortgage companies will still have to compensate them for their "market worth".  It's possible that although the fee might look better, the base rate (without discount points) might be higher as it will be set by the bank or mortgage company, and not the originator.

Points:  This is currently the most common method with how a mortgage originator is paid.  Points can be paid by the consumer or by rebate from the bank/lender.

Hourly:  Consumers could select a mortgage originator based on their hourly rate and an estimation of how many hours the mortgage originator estimates their transaction would take.

Filed Under: Polls, The Fed - FOMC

Ben Bernanke’s Mortgage Rate Exit Strategy

February 10, 2010 by Leave a Comment

Ben Bernanke will be testifying before the House Finance Servicing Committee regarding the Fed’s exit strategy.   From his prepared testimony:

All told, the Federal Reserve purchased $300 billion of Treasury securities and currently anticipates concluding purchases of $1.25 trillion of agency MBS and about $175 billion of agency debt securities at the end of March.

What this means is to you and me is that we will start seeing rates increase well before the end of March as the markets will adjust before the Fed stops their support of keeping mortgage rates artificially low.

This is nothing new.  It will be interesting to hear what else Mr. Bernanke has to say to the Committee today.

And for your morning viewing pleasure, how about this clip from Snagglepuss who’s famous for his exits:

I can’t believe I used to watch this stuff while eating my sugary cereal in the morning!

Filed Under: Interest Rates, The Fed - FOMC
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