We have been lulled into a false sense of comfort with rates being so low, and now that they are starting to rise, we pretend it’s not happening and look the other way. I can’t tell you how many clients have asked, “when are rates going back down?” I have one client who insists the 30 year fixed rate will soon go to 4% at which time he is going to refinance his current 6% mortgage. We have a good relationship. I tell him he’s nuts and should have refinanced a year ago, but he is adamant – rates will go down. The mantra, the customer is always right echos in my head, but this time it’s just noise. It’s OK to take your chips off the table and to say I’m done gambling.
My crystal ball stopped working a long time ago and I truly have no idea what rates will do in the coming months. But I do see trends and important changes in the mortgage climate that will have an immediate impact on rates and the cost of getting a mortgage. And unfortunately, they are pointing to higher fees and higher rates. For the sake of my sanity, if you can save some money now by refinancing and you know you will be in your home for the forseeable future – don’t wait for the mythical Unicorn to get it done.
Let’s look at last weeks mortgage market alone – 8 of the last 10 days rates got worse. The long-term trend is for rising rates because the economy is finally showing some signs of life.
|30 Yr FRM||5.10%||4.85%||+0.25|
|15 Yr FRM||4.25%||4.15%||+0.10|
|FHA 30 Year Fixed||4.94%||4.72%||+0.22|
|Jumbo 30 Year Fixed||5.85%||5.78%||+0.07|
|5/1 Yr ARM||3.70%||3.54%||+0.16|
In addition to an improving economy, why else should you worry?
A few weeks ago, I posted an article about getting the best rate and why costs are going up. Come April of this year, Fannie and Freddie are set to increase fees as they desperately try to build reserves. In addition, they will be incorporating some across the board fees regardless of your good credit scores – so all of you A+ credit borrowers are not immune.
Many of you know my feelings about the big banks. I have a tormented love-hate relationship that leans toward the latter. But, in full disclosure, my company underwrite and sell loans to these behemoth organizations, so at the end of the day my income is supplemented by these institutions. Talk about being stuck between a rock and a hard place! In light of my pessimism, I have to be forward thinking and hope the Dodd-Frank Financial Reform Act and creation of the Consumer Finance Protection Bureau will help. As the big banks are charged more for the risk they are willing to take, undoubtedly these added costs will be funneled right down to you and I – the consumer.
In addition to the increase in costs that we know are coming, we are still faced with the uncertainty of what will happen to Fannie Mae and Freddie Mac as the Treasury’s proposed reforms start to work their way into the banking system. The Treasury’s plans, as it stands, would transfer huge power to the large banks insured by the Federal Deposit insurance Corporation. Yes, the banking monopoly of mega-banks that already have a combined 60% of the mortgage market as reported by the Wall Street Journal, will get more powerful and continue to wipe out the competition from smaller brokers and wholesalers. Can you say too-big-to-fail?
For your enjoyment, you have witnessed my lack of focus. My intent was to produce a quick blurb about rates going up, and in typical fashion I went down a different road. Bottom line, I want my clients to ready themselves for higher rates and higher fees. The economy is improving and the threat of inflation (higher prices) is trending higher, thus rates should continue to edge north. In this watershed moment in Congress and our financial markets, I don’t believe changes that cut competition and diversity of funding sources is good public policy.