Monday, May 21, 2012

Can you Qualify for the Lowest of the Lows?

Freddie Mac says mortgage rates are 3.79% nationwide with an accompanying 0.7 discount points nationwide -- an all-time low. Yet, few people actually get that rate from their lender with the same number of points.

What's the real reason why you can't lock Freddie Mac's 3.79% rates?
Turns out, there are 3 of them.

30-Day Mortgage Rates At 3.79%? Only For Some.

Each week, Freddie Mac publishes a national mortgage rate survey. The survey results are based on the mortgage rate responses from roughly 125 banks nationwide. The banks tell Freddie Mac their "going rates" for a 30-year fixed rate mortgage, 15-year fixed rate mortgage and 5-year ARM, and Freddie Mac dutifully reports it to the American People.

Unfortunately, the posted rates make a gross assumption -- they assume a 30-day rate lock agreement between the bank and the customer. And, lately, except for purchase money transactions, 30-day rate lock agreements have been rare.

Few banks are giving 30-day rate locks anymore because it's getting tougher and tougher to close a refinance in 30 days. There are multiple reasons for this, including :
oLow mortgage rates have created a surge in active mortgage loan applications
oNew federal loan compliance regulations have added extra days to underwriting
oThere are fewer appraisers to service a growing number of requests, increasing turnaround times from scheduling to completion.

In addition, banks employ fewer "back-office" personnel as compared to during other growth cycles. In short, people can only work so fast and today's mortgage applications are subject to thorough vetting process. When loan volume's low, banks work through files quickly.
Volume has not been low in 9 months. Mortgage lenders are working through backlogs as best as they can, but until they're caught up, refinancing homeowners in California, Virginia, and everywhere in between will be forced to take 45-day rate lock or, in some cases, 60-day rate locks. These longer rate locks add to mortgage costs, and push mortgage rates up.

The mortgage rate for a 45-day rate lock is typically 1/8 percent higher than for a comparable 30-day; a 60-day rate lock is often 1/4 percent higher.
This is why it doesn't matter than Freddie Mac says mortgage rates are 3.79% nationwide. If your bank can't close a loan start-to-finish in 30 days, your mortgage rate will be higher, or your required discount points will be higher. Period.