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What Is a Mortgagee? Hint: It’s Not a Typo

Are You a Mortgagee or Mortgagor?

It’s mortgage Q&A time! Today’s question: “What is a mortgagee?”

No, it’s not a typo. I didn’t leave an extra “e” on the word mortgage by mistake, though it may appear that way.

Despite its striking appearance, it’s actually a completely different word, somehow, simply with the mere addition of the letter E.

Don’t ask me how or why, I don’t claim to be an expert in word origins.

Seems like a good way to confuse a lot of people though, and it has probably been successful in that department for years now.

You can blame the British English language for that, or maybe American English.

Anyway, let’s stop beating up on the English language and define the darn thing, shall we.

A “mortgagee” is the entity that originates (makes) and sometimes holds the mortgage, otherwise known as the bank or the mortgage lender.

They lend money so individuals like you and I can purchase real estate without draining our bank accounts.

It could also be your loan servicer, the entity that sends you a mortgage bill each month, and perhaps an escrow analysis each year if your loan has impounds.

The mortgagee extends financing to the “mortgagor,” who is the homeowner or borrower in the transaction.

So if you’re reading this and you aren’t a bank, you are the mortgagor. It’s as simple as that.

Another way to remember this rather confusing word jumble; Who is the mortgagee? Not me!!

Mortgagor Rhymes with Borrower, Kind Of

mortgagor

  • Here’s a handy way to remember the word mortgagor
  • It kind of rhymes with the word borrower…
  • Or even the word homeowner, which is also accurate if you hold a mortgage on your property

I was trying to think of a good association so homeowners can remember which one they are, instead of having to look it up every time they come across the word.

I believe I came up with a semi-decent, not great one. Mortgagor rhymes with borrower, kind of. Right? Not really, but they look and end similar, no?

Anyway, the real property (real estate) acts as collateral for the mortgage, and the mortgagee obtains a security interest in exchange for providing financing (a home loan) to the mortgagor.

If the mortgagor doesn’t make their mortgage payments as agreed, the mortgagee has the right to take possession of the property in question, typically through a process we’ve all at least heard of called foreclosure.

Assuming that happens, the property can eventually be sold by the mortgage lender to a third party to pay off any attached liens, or mortgages.

So if you’re still not sure, you are probably the mortgagor, also known as the homeowner with a mortgage. And your lender is the mortgagee. Yippee!

What makes this particular issue even more confusing is that it’s the other way around when it comes to related words like renters and landlords.

Yep, for some reason a landlord is known as a “lessor,” whereas the renter/tenant is known as the “lessee.” In other words, it’s the exact opposite for renters than it is for homeowners.

But I suppose it makes sense that both landlord and mortgage borrower are property owners.

What About a Mortgagee Clause?

mortgagee clause

  • An important document you may come across when dealing with homeowners insurance
  • Stipulates who the lender (mortgagee) is in the event there is damage to the subject property
  • Protects the lender’s interest if/when an insurance claim is filed
  • Since they are often the majority owner of the property

You may have also heard the term “mortgagee clause” when going through the home loan process.

It refers to a document that protects the lender’s interest in the property in the event of any damage or loss.

It contains important information about the mortgagee/lender, including name, address, etc. so the homeowners insurance company knows exactly who has ownership in the event of a claim.

Remember, while you are technically the homeowner, the bank probably still has quite a bit of exposure to your property if you put down a small down payment.

For example, if you come in with just a 3% down payment, and the bank grants you a mortgage for 97% of the home’s value, they are a lot more exposed than you are.

This is why hazard insurance is required when you take out a mortgage, to protect the lender if something bad happens to the property.

Conversely, if you buy a home with cash, as opposed to taking advantage of the low mortgage rates on offer, it’s your choice to insure it or not.

But more than likely, you’ll want insurance coverage on your property regardless.

In summary:

Mortgagee: Bank or mortgage lender
Mortgagor: Borrower/homeowner (probably you!)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

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When Will the Next Housing Market Crash Take Place?

I’ve noticed a trend lately. Everyone’s a real estate expert.

It seems the most recent crisis and recovery has turned just about every single person into a guru on all things to do with home buying and selling.

I suppose part of it has to do with the fact that the massive housing bubble that formed a decade ago swept the nation and was front page news.

It also directly affected millions of Americans, many who serially refinanced their mortgages, then found themselves underwater, then eventually short sold, were foreclosed upon, or held on for the ride back up to new heights.

It’s a common conversation piece these days to talk about your local housing market.

Thanks to greater access to information, folks are scouring Redfin and Zillow and coming up with theories about what that home should sell for, or what they should have listed it for.

Neighbors are getting upset when nearby listings are not to their liking for one reason or another. What were they thinking?!

A New Housing Bubble Mentality

  • Real estate is red-hot again thanks to limited supply and intense demand
  • It can feel like an ominous sign that we’re headed down a dark road again
  • But that alone isn’t reason enough for the housing market to crash again
  • There have to be clear catalysts and financial stress for another major downturn

All of this chatter portends some kind of new bubble mentality in my mind, though it seems everyone is just basing their hypotheses on the most recent housing bust, instead of perhaps considering a longer timeline.

One could look at the recent run-up in home prices as yet another bubble, less than a decade since home prices bottomed around 2012.

After all, many housing markets have now surged well beyond their previous lofty levels seen about 15 years ago when home prices peaked.

For example, Denver area home prices are about 86% higher than they were in 2006. And back then, everyone felt home prices were completely out of control.

In other words, home prices were haywire, and are now nearly double that.

Meanwhile, the typical U.S. home is currently valued around $273,000, per Zillow, which is about 27% higher than the peak of $215,000 seen in early 2007.

It’s also nearly 70% higher than the typical home price of $162,000 back in early 2012, when home prices more or less bottomed.

So if want to look at home prices alone, you could start to worry (though you also have to factor in inflation which will naturally raise prices over time).

But they say bubbles are financially driven, and we’ve yet to see a return to shoddy underwriting.

I will say that there’s been a recent return of near-zero down financing, with many lenders taking Fannie and Freddie’s 97% LTV program a step further by throwing a grant on top of it.

This means borrowers can buy homes today with just 1% down payment, and even that tiny contribution can be gifted from someone else.

So things might be getting a little murky, especially if you consider the increase in prices over the past four or five years.

One could also argue that affordability is being supported by artificially low mortgage rates, which history tells us won’t be around forever.

There’s also a general sense of greed in the air, along with a feeling amongst homeowners that they’re getting richer and richer by the day.

That type of attitude sometimes breeds complacency and unnecessary risk-taking.

But When Will Home Prices Crash Again?!

real estate cycle

  • If you believe in cycles, which seem to be pretty evident in real estate and elsewhere
  • We will see another housing crash at some point relatively soon
  • There appears to be an 18-year cycle that has been observed for the past 200 years
  • This means the next home price peak (and then bust) might begin in 2024

All of those recent home price gains might make one wonder when the next housing market crash will take place.

After all, home prices can only go up for so long before they drop again, right?

Well, the answer to that age-old question might not be as elusive as you think.

The real estate market apparently moves in cycles that some economists think can be predicted to a relatively high degree.

While not a perfect science, there seems to be “a steady 18-year rhythm” that has been observed since around the year 1800.

Yes, for over 200 years we’ve seen the real estate market follow a familiar boom and bust path, and there’s really no reason to think that will stop now.

It puts the next home price peak around the year 2024, followed by perhaps a recession in 2026 and a march down from there.

How much home prices will fall is an entirely different question, but given how much they’ve risen (and can rise still), it could be a long, long way down.

And we might not have super low mortgage rates at our disposal to save us this time, which is a scary thought.

You’ll Never Get Back Into the Housing Market…

  • There are four main phases in a real estate cycle
  • A recovery period and an expansion period
  • Followed by hypersupply and an eventual downturn
  • Don’t believe the hype that if you don’t buy today, you’ll never get the chance!

Another housing bust in inevitable, despite folks telling us we’ll never get back in again if we sell our home today, or don’t buy one tomorrow.

There are four phases to this predictable cycle, including a recovery phase, which we’ve clearly experienced, followed by an expansion phase, where new inventory is created to satisfy demand. This is happening now.

At the moment, home builders are ratcheting up supply to meet the intense demand in the market, with some 45 million expected to hit the average first-time home buyer age this decade.

The problem is like anything else in life, when demand is hot, producers have a tendency to overdo it, creating more supply than is necessary.

That brings us to the next phase, a hypersupply period where builders overshoot the mark and wind up with too much new construction, at which point prices plummet and a recession sets in.

The good news (for existing homeowners) is that according to this theory, we won’t see another home price peak until around 2024.

That means another three years of appreciation, give or take, or at least no major losses for the real estate market as a whole.

So even if you purchased a home recently and spent more than you would have liked, it could very well look cheap relative to prices a few years down the line.

The bad news is that the real estate market is destined to stall again in just three short years, meaning the upside is going to diminish quite a bit over the next few years.

This might be especially true in some markets that are already priced a little bit ahead of themselves, which may be running out of room to go much higher.

But perhaps more important is the fact that home prices tend to move higher and higher over time, even if they do experience temporary booms and busts.

So if you don’t attempt to time the market you can profit handsomely over the long term, assuming you can afford the underlying mortgage.

And remember, there’s more to homeownership than just the investment.

Source: thetruthaboutmortgage.com

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Mortgage Crisis Foreshadowing

I think a lot. Often, about mortgages. In fact, a day doesn’t go by when I don’t try to think of topics to write about on this very website.

It’s not always easy to come up with new material, given the fact that I’ve been writing about mortgages since 2006.

But every once and a while, I try to come up with something interesting in the rather mundane world of mortgage.

And so the other day, I remembered a former landlord of mine. She owns a home in Los Angeles.

I had rented out the property back in 2004 or so when everything was booming.

Mortgages were hot, as was real estate. Home prices only moved in one direction, and did so in an accelerated fashion. You couldn’t lose!

I’ll never forget a conversation I had with the owner. At the time, I worked for a mortgage lender, and she had come by the house for some reason or another.

We began talking about real estate, mortgages, and the like, and she mentioned something I’ll never forget.

I Refinance My Mortgage Every Year

She told me, rather proudly, that she refinanced her mortgage every year. And that she had a Countrywide rep that took care of everything.

As far as I knew, this meant she was tapping her home equity each year as the property value increased, and likely employing an option arm to keep monthly mortgage payments low.

She seemed so pleased with herself, with telling me of her grand plan, which she apparently felt was bulletproof.

It was one of those one-sided conversations where the person tells you how it is and doesn’t need to hear your opinion on the matter.

They’ve made up their mind and are confident in their decision.

Not that I had any intention of telling her it was reckless, or that it could come back to bite her.

After all, her mind was made up and I would just be perceived as the pushy mortgage guy trying to “sell her something,” despite the fact that I was employed by a wholesale lender and never actually worked with homeowners.

Home for Lease

Anyways, years later I drove by the house I had resided in and saw a “for lease” sign plopped right in front.

I shook my head as I drove past, thinking how she undoubtedly got in over her head and was now stuck with a colossal mortgage.

Oh, and her Countrywide rep, who “took care of everything,” was probably long gone.

When I got home, I jumped on the Internet to check the lease price, and was not astonished to see that it was astronomical.

Clearly it had to be large enough to cover her bloated mortgage payment, which increased significantly as the price of the home doubled in five short years.

Unsurprisingly, it was so high that there weren’t any takers, and it wasn’t long before the home was taken off the market.

So she was unable to lease it, and there’s no possibility of a sale because she definitely has a deeply underwater mortgage, as the price of the home fell back to its original purchase price.

It’s unclear what her plan B is now, but the lesson is clear. Home prices don’t rise indefinitely. And if you take cash out, it must be paid back. Unless you walk away.

Either way, there’s no clean getaway. And she had to have known at some point along the way that it was just “too easy.”

It was a shortsighted plan, and one that didn’t leave much room for error. It banked on endless home price appreciation. Once that myth came undone, there wasn’t a logical next move.

Sadly, this story isn’t a unique one, which explains to some degree where we’re at, and why it will take a long, long time to get back to “normal.”

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

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Mortgage Rate Shopping: 10 Tips to Get a Better Deal

Last updated on December 8th, 2020

Looking for the best mortgage rates? We’ve all heard about the super-low mortgage rates available, but how do you actually get your hands on them?

When it’s all said and done, it never seems to be as low as the bank originally claimed, which can be pretty frustrating or even problematic for your loan closing.

But instead of worrying, let’s try to find solutions so you too can take advantage of these remarkable interest rates.

There are a number of ways to find the best mortgage rates, though a little bit of legwork on your behalf is definitely required.

After all, you’re not buying a TV, you’re buying a home or refinancing an existing, probably large home loan.

best mortgage rate

If you’re not willing to put in the work, you might be disappointed with the rate you receive. But if you are up for the challenge, the savings can make the relatively little time you put in well worth it.

The biggest takeaway is shopping around, since you can’t really determine if a mortgage rate is any good without comparing it to others.

Many prospective and existing homeowners simply gather one quote, typically from a friend or real estate agent’s reference, and then kick themselves later for not seeing what else is out there.

Below are 10 tips aimed at helping you better navigate the shopping experience and ideally save some money.

1. Advertised mortgage rates generally include points and are best-case scenario

You know those mortgage rates you see on TV, hear about on the radio, or see online. Well, most of the time they require you to pay mortgage points.

So if your loan amount is $200,000, and the rate is 3.75% with 1 point, you have to pay $2,000 to get that rate. And there may also be additional lender fees on top of that.

It’s important to understand that you’re not always comparing apples to apples if you look at interest rate alone.

For example, lenders don’t charge the same amount of fees, so clearly rate isn’t the only thing you should look at when shopping.

Additionally, these advertised mortgage rates are typically best-case scenario, meaning they expect you to have a 760+ credit score and a 20% down payment. They also expect the property to be a single-family home that will be your primary residence.

If any of the above are not true, you can expect a much higher mortgage rate than advertised.

Are you showing the lender you deserve the lowest rate, or simply demanding it because you feel entitled to it? Those who actually present the least risk to lenders are the ones with the best chance of securing a great rate.

2. The lowest mortgage rate may not be the best

Most home loan shoppers are probably looking for the lowest interest rate, but at what cost? As noted above, the lowest interest rate may have steep fees and/or require discount points, which will push the APR higher and make the effective rate less desirable.

Be sure you know exactly what is being charged for the rate provided to accurately determine if it’s a good deal. And consider the APR vs. interest rate to accurately gauge the cost of the loan over the full loan term.

Lenders are required to display the APR next to the interest rate so you know how much the rate actually costs. Of course, APR has its limitations, but it’s yet another tool at your disposal to take note of.

3. Compare the costs of the rate offered

Along those same lines, you need to compare the costs of securing the loan at the par rate, versus paying to buy down the rate.

For example, it may be in your best interest to take a slightly higher rate to cover all your closing costs, especially if you’re cash-poor or simply don’t plan on staying in the home very long.

If you won’t be keeping the mortgage for more than a year or two, why pay points and a bunch of closing costs out of pocket. Might as well take a slightly higher rate and pay a tiny bit more each month, then you can get rid of the loan. [See: No cost refinance]

Conversely, if you plan to hunker down in your forever home and can obtain a really low rate, it might make sense to pay the fees out-of-pocket and pay points to lower your rate even more. After all, you’ll enjoy a lower monthly payment as a result for many years to come.

4. Compare different loan types

When comparing pricing, you should also look at different loan types, such as a 30-year vs. 15-year. If it’s a small loan amount, you might be able to refinance to a lower rate and barely raise your monthly payment.

For example, if you’re currently in a 30-year home loan at 6%, dropping the rate to 2.75% on a 15-year fixed won’t bump your mortgage payment up a whole lot. And you’ll save a ton in interest and own the home much sooner, assuming that’s your goal.

And as mentioned, if you only plan to stay in the home for a few years, you can look at lower-rate options, such as the 5/1 ARM, which come with rates that can be much lower than the 30-year fixed. If you’ll be out of there before the loan ever adjusts, why pay for the 30-year fixed?

5. Watch out for bad recommendations

However, don’t overextend yourself just because the bank or broker says you’ll be able to pay off your mortgage in no time at all.

They may recommend something that isn’t really ideal for your situation, so do your research before shopping. You should have a good idea as to what loan program will work best for you, instead of blindly following the loan officer’s opinion.

It’s not uncommon to be pitched an adjustable-rate mortgage when you’re looking for a fixed loan, simply because the ultra-low rate and payment will sound enticing. Or told the 30-year fixed is a no-brainer, even though you plan to move in just a few years.

6. Consider banks, online lenders, credit unions, and brokers

I always recommend that you shop around and compare lenders as much as possible. This means comparing mortgage rates online, calling your local bank, a credit union, and contacting a handful of mortgage brokers.

If you stop at just one or two quotes, you may miss out on a much better opportunity. Put simply, don’t spend more time shopping for your new couch or stainless-steel refrigerator. This is a way bigger deal and deserves a lot more time and energy on your part.

Your mortgage term is probably going to be 30 years, so the decision you make today can affect your wallet for the next 360 months, assuming you hold your loan to term. Even if you don’t, it can affect you for years to come!

7. Research the mortgage companies

Shopping around will require doing some homework about the mortgage companies in question. When comparing their interest rates, also do research about the companies to ensure you’re dealing with a legitimate, reliable lender that can actually get your loan closed.

A low rate is great, but only if it actually funds! There are lenders that consistently get it done, and others that will give you the runaround or bait and switch you, or just fail to make it to the closing table because they don’t know what they’re doing.

Fortunately, there are plenty of readily accessible reviews online that should make this process pretty simple. Just note that results will vary from loan to loan, as no two mortgage loans or borrowers are the same.

You can probably take more chances with a refinance, but if it’s a purchase, you’ll want to ensure you’re working with someone who can close your loan in a timely manner. Otherwise a seemingly good deal could turn bad instantly.

8. Mind your credit scores

Understand that shopping around may require multiple credit pulls. This shouldn’t hurt your credit so long as you shop within a certain period of time. In other words, it’s okay to apply more than once, especially if it leads to a lower mortgage rate.

More importantly, do not apply for any other types of loans before or while shopping for a mortgage. The last thing you’d want is for a meaningless credit card application to take you out of the running completely.

Additionally, don’t go swiping your credit card and racking up lots of debt, as that too can sink your credit score in a hurry. It’s best to just pay cash for things and keep your credit cards untouched before, during, and up until the loan funds.

Without question, your credit score can move your mortgage rate significantly (in both directions), and it’s one of the few things you can actually fully control, so keep a close eye on it. I’d say it’s the most important factor and shouldn’t be taken lightly.

If your credit scores aren’t very good, you might want to work on them for a bit before you apply for a mortgage. It could mean the difference between a bad rate and a good rate, and hundreds or even thousands of dollars.

9. Lock your rate

This is a biggie. Just because you found a good mortgage rate, or were quoted a great rate, doesn’t mean it’s yours.

You still need to lock the rate (if you’re happy with it) and get the confirmation in writing. Without the lock, it’s merely a quote and nothing more. That means it’s subject to change.

The loan also needs to fund. So if you’re dealing with an unreliable lender who promises a low rate, but can’t actually deliver and close the loan, the rate means absolutely nothing.

Again, watch out for the bait and switch where you’re told one thing and offered something entirely different when it comes time to lock.

Either way, know that you can negotiate during the process.  Don’t be afraid to ask for a lower rate if you think you can do better; there’s always room to negotiate mortgage rates!

10. Be patient

Lastly, take your time. This isn’t a decision that should be taken lightly, so do your homework and consult with family, friends, co-workers, and whoever else may have your best interests in mind.

If a company is aggressively asking for your sensitive information, or trying to run your credit report right out of the gate, tell them you’re just looking for a ballpark quote. Don’t ever feel obligated to work with someone, especially if they’re pushy.

You should feel comfortable with the bank or broker in question, and if you don’t, feel free to move on until you find the right fit. Trust your gut.

Also keep an eye on mortgage rates over time so you have a better idea of when to lock. No one knows what the future holds, but if you’re actively engaged, you’ll have a leg up on the competition.

One thing I can say is, on average, mortgage rates tend to be lowest in December, all else being equal.

In summary, be sure to look beyond the mortgage rate itself – while your goal will be to secure the lowest rate possible, you have to factor in the closing costs, your plans with the property/mortgage, and the lender’s ability to close your loan successfully.

Tip: Even if you get it wrong the first time around, you can always look into refinancing your mortgage to lower your current interest rate. You aren’t stuck if you can qualify for another mortgage down the road!

Source: thetruthaboutmortgage.com

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Pros and Cons of Refinancing Your Mortgage Right Now

Since April 1, 2009, roughly 16.2 million American homeowners have refinanced their mortgages, according to the latest Housing Scorecard released by HUD.

But as you may or may not know, there are still millions of homeowners who have not, for one reason or another.

Some may not be eligible, while others may be going through foreclosure or have simply given up on making payments.

[Reasons why you can’t refinance.]

And hey, some just may have procrastinated, or simply aren’t that interested in their mortgage.

For example, Obama hasn’t refinanced his mortgage in seven years, but Bernanke has been all about it in recent years.

If you look at the chart below, you’ll notice that refinancing has been pretty steady since the lull in 2008 (when lending came to a standstill), but it’s still nowhere close to that seen in 2003 when things were bubbling up toward implosion.

refinanced

Yet, mortgage rates are at all time lows, and continue to fall seemingly every week, month, etc., not that anyone seems to care.

So if you’re on the fence about refinancing, let’s look at a few pros and cons of refinancing now vs. later.

Con: Home Prices Rising

Home prices have been on the rise for a while now, and are expected to keep climbing nationwide.

The Housing Scorecard also noted that rising property values have brought homeowner equity to its highest point since the third quarter of 2008.

That pushed 1.3 million homeowners out of an underwater position. That’s great for those looking to refinance, as it should make it easier.

equity

But higher home prices also make refinancing even more attractive to those with equity because their loan-to-value ratio may fall to a lower threshold, pushing their qualifying mortgage rate even lower.

So for those who believe their home value will keep increasing, pumping the brakes on refinancing might be a good move, especially if you’re right on the cusp of a LTV threshold such as 80%, where you can ditch mortgage insurance.

Pro: Record Low Rates

On the flip side of that argument, one could argue that mortgage rates are at unprecedented levels, and you’d be a fool not to refinance now.

After all, what if mortgage rates tick higher and you “miss your chance” at snagging a 30-year fixed near 3%?

You might kick yourself a few times for missing the boat. And how low can mortgage rates really fall?

Con: Even Lower Rates

Well, the housing pundits have said that month after month, and week after week, only to grab their erasers and pretend they didn’t call a mortgage rate bottom.

I’ll admit that I’ve been one of those people.

Yes, rates are absurdly low, but no, they probably haven’t bottomed. There is still so much uncertainty out there that can push rates even lower.

Europe is still unraveling, and whether there has been much improvement locally is still a big question mark.

With the Fed pledging to buy mortgage securities until the cows come home, waiting could pay off.

Pro: Lower Payments Today

But, the longer you wait to refinance, the more you’ll pay each month in the form of a higher interest rate.

So if you keep riding it out, waiting for that perfect time to refinance, you’re essentially missing out on a lower payment during those months (or years).

Make sure you factor in all that money once you finally make the decision to refinance. The savings could be skewed as a result.

Con: Big Picture Savings

Of course, you might just say, “hey, I might be spending more each month now, but once I get a 2.50% 30-year fixed, I’ll be ahead in no time.”

That could be true, and someone who waits a bit longer could wind up with an even better rate and a lower monthly payment, which could spell bigger savings over the years ahead.

[Locking vs. floating]

After all, refinancing costs money (unless it’s a no cost loan), and serially refinancing isn’t always possible (nor fun), especially if your credit takes a hit or something else makes you ineligible.

Pro: You’re Eligible Now

Speaking of, if you’re eligible now, and the interest rate is dynamite, letting it ride might not be the best move.

What if something does bar your eligibility, such as unemployment, a mindless missed payment that leads to a lower credit score, or simple program changes?

There’s been talk about all types of stuff on the horizon, like a qualified mortgage, which Romney mentioned in the first presidential debate.

You wouldn’t want to be caught out by a future change or misstep, would you?

In summary, you can’t really go wrong by refinancing right now, assuming it saves you money, but yes, waiting could prove to be better.

In any case, take the time to really think it over!

Source: thetruthaboutmortgage.com

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The Problem With Mortgage Rate Surveys

Every week, mortgage financier Freddie Mac comes out with a mortgage rate survey, which reveals the average interest rate (and points) charged by lenders for popular types of home loans.

About 125 lenders from across the nation, including thrifts, mortgage lenders, credit unions and commercial banks, take part in the survey that dates back to 1971.

The survey data is collected from Monday to Wednesday, and the results are posted on Freddie Mac’s website on Thursday of each week.

Come Thursday morning, the media goes nuts with the data in the report, known as the Primary Mortgage Market Survey (PMMS).

And just minutes after its release, you’ll see startling headlines like, “mortgage rates fall again,” or “mortgage rates climb higher.”

Mortgage Rate Surveys Use Old Data

  • The biggest flaw with the survey is that the rates are delayed
  • Because mortgage rates aren’t static
  • They are constantly in flux, both daily and intraday changes can take place
  • So you’re really just getting yesterday’s news at best

Unfortunately, whatever the message may be for a given week, it’s often old news by the time the media gets their grubby hands on it.

You see, mortgage rates can and will change daily, and sometimes swing dramatically, depending on what’s going on that week.

Lately, there have been plenty of swings thanks to all the uncertainty regarding the direction of the economy.

So a mortgage rate quote (yes, they’re just quotes in the survey) given to a handful of borrowers on Monday may be completely different by Thursday.

Sure, it could be exactly the same too, but chances are it won’t be. And the direction of rates often highlighted in news reports may be completely wrong as well.

Imagine opening up a newspaper on Thursday morning and viewing stock quotes from a few days earlier. That wouldn’t do you much good, would it? Especially if you had to act on it.

Assumptions Aplenty

  • Like all other rates you see advertised or surveyed
  • They make a series of assumptions
  • Such as a 20% down payment or a 740 credit score
  • Which may or may not actually apply to you

Okay, so the data isn’t as timely as the media might make it appear, even if it’s “weighted” and “averaged” and “algorithmically adjusted.”

Yes, I’m making up phrases here, but the point is the data is only as good as the day it is released, at least for the purposes of a prospective borrower shopping rates.

On top of that, the rates in the survey assume the world of you, the borrower.

The rates are based on first-lien (first mortgage) prime (great credit) conventional (non-government) conforming mortgages (small loan amounts) with a loan-to-value ratio of 80% (big down payment).

In other words, if you’re not putting down 20%, the rate in the survey isn’t for you. And if your credit score isn’t tip-top, you should also ignore the rates in the survey unless you want to be disappointed.

If you’ve got a jumbo loan, again, don’t bother reading the survey if you’re curious what rate you’ll actually receive.

Are the Mortgage Rate Surveys a Waste of Time?

  • Averages and old data don’t sound very useful
  • But the weekly mortgage rate surveys do have some value
  • In measuring interest rates over time for research and perspective
  • However for rate shopping they’re probably not all that helpful

I know I sound overly negative about the survey, but back in the day, I used to report on it just like every other major media outlet.

I stopped after I realized it wasn’t adding much value, not to mention the fact that 1000 other news outlets wrote about the very same stuff every Thursday morning.

The surveys aren’t inherently bad, they’re just not a very effective tool for borrowers shopping rates. If anything, they’re good to measure interest rates over time.

And a researcher may use the data to explain something that happened in the past, or to attempt to predict something that may happen in the future.

But for mortgage rate shopping, the Freddie survey (or any of the many, many other surveys out there) won’t do you much good. If anything, it could just frustrate you (and your loan officer) when the numbers don’t match up.

Zillow launched a weekly mortgage rate update a while back that is released every Tuesday.

They actually note that theirs isn’t a survey and the rates aren’t “marketing rates,” but rather are based on custom mortgage rate quotes submitted daily, reflecting the most recent market changes.

Again, take them with a grain of salt because there is no one-size-fits-all in mortgage lending.

So if you want the real skinny, get daily mortgage pricing from the bank or lender you’re working with.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Posted on

A Long Mortgage Process Can Be Your Friend or Your Worst Enemy

Posted on August 17th, 2012

Let’s face it, these days it takes a while to get a mortgage. And by a while, I mean months in some cases.

Why? Because everyone and their mother is well aware of the record low mortgage rates, and they all want a bite.

As a result, both purchase and refinance transactions are averaging 48 days to close as banks and lenders merely try to keep up with demand.

This means once you submit your loan application, it will take an entire month and a half to actually close the deal, if you’re lucky.

Obviously this is more important for purchase transactions, as they are more time-sensitive, but timing is very important when it comes to refinancing as well.

Mortgage Rates Subject to Change

When you see a certain mortgage rate advertised online or on TV, you must take it with a large grain of salt.

First off, it’s a perfect-scenario rate for someone that meets certain requirements, such as having a great credit score, a large down payment (or low LTV ratio), and a loan amount below the conforming limit.

Assuming you meet all those requirements (and more), that rate may still be out of reach for one reason or another, one being time. In short, a rate you see today may not be available tomorrow.

That brings us back to that 48 days to close situation. Per the latest Origination Insight Report from Ellie Mae, refis averaged 48 days to close in July, while purchases averaged 47 days.

These numbers have been inflated for the entire year now, and loan originators are swamped trying to get all those applications funded. While they’re working to fund your loan, don’t expect mortgage rates to stand still. Instead, expect a roller coaster ride at best.

Who’s Hurting?

Well, in the past couple weeks mortgage rates have been trending up after touching all-time lows.

As a result, those who submitted loan applications a month or so ago may be in for a rude awakening.

For example, they may have submitted their loan when the 30-year fixed was averaging close to 3.5%, only to find rates have climbed to 3.75% today.

If it’s almost time to close, they’ll have no choice but to take the higher rate (or buy down their rate). A higher rate could also jeopardize their approval if it swings their DTI ratio too high.

Clearly this isn’t ideal, but this is why savvy borrowers lock their rate instead of floating it when rates are attractive.

So those who got greedy or simply didn’t think to lock might be bummed out.

Is Now the Time to Wait?

Because mortgage rates have been climbing steadily on what appears to be no news, we’re probably due for a correction sometime soon.

After all, the economy hasn’t exactly proven itself, and Europe isn’t out of the woods. It seems their latest move is to just keep quiet and hope no one notices what’s really going on.

It certainly seems to be cyclical, with bad news and good (or no news) coming in and out, pushing mortgage rates up and down.

At the moment, we’re in an uptrend, so those who just submitted loans may want to wait it out until things improve again. Heck, you’ve got more than a month to decide.

Sure, you run the risk of mortgage rates climbing even higher by the time you close your loan, but with no great news out there, there’s a good chance rates could trend back down to where they were a month ago.

All that said, make sure you consider timing when submitting your loan. Ask your bank or broker how long it will take to close, and plan accordingly to ensure you get the rate you want.

For the record, the closing rate has been pretty dismal of late. Only 37.9% of refis and 58.7% of purchases actually closed(within 90 days), meaning plenty of loans are getting denied for one reason or another.

Read more: Reasons why your refinance was denied.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com