SOONER THAN LATER

I just received an email from a highly respected colleague in the mortgage business, someone I’ve worked with for many years. He had just left a meeting with his account rep at a national lender we both work with and he passed on some very interesting points for consideration. In turn, I think that my clients could benefit from these comments.

“As you know, rates were driven down when the government committed to purchase $300 billion in loans from FNMA & FHLMC. That money has been used up and they have added more on top of that. But they (various sources in the government) have also said that the current plan is for the government is to stop purchasing mortgages in June and let market driven forces do what they may. If that happens, rates could go back to the 6% to 6.25% range that they were in before the government purchase program began.

In the meantime, there is still a lot of interest by the government to keep rates low in order to stimulate the housing market. That may mean that government purchases of mortgages may continue beyond June. HOWEVER, the issue then is lender capacity. Industry experts estimate that there is $5 trillion dollars worth of loans that would benefit by a refinance at 5% interest rate. If the rate goes to 4.75%, that number goes to $7 trillion, and at 4.5% the number goes to $12 trillion. That sounds like a lot of business for brokers but lenders currently do not have the capacity to handle it. The highest annual loan volume ever was $4 trillion in 2003! At that time there were about 100 direct lenders and another 200 pass through companies to handle the volume. Now the number of lending companies is much smaller. And these remaining lenders have laid off a large percentage of their staff. They could rehire, but most will not do that if they think the volume will drop later this year if the rates go back up. So, the conclusion many in the business have reached, is that even if the government pumps in money to buy more mortgages (which would keep rates down), lenders may not give a corresponding rate decrease because they are already overwhelmed and want to restrict volume.

Along that same line, lenders may actually take steps to further reduce volume by adding more restrictions or continuing to increase fees. One particular restriction may be extra fees for refinances vs purchases. That would allow lower rates for purchases but reduce volume for refinances. (Note: this is speculation on the part of the loan company rep and is not an official position by this national lender!)

The conclusion is that people should refinance now rather than wait.

They may want 4.5%, but if 5.25 works for them, they should at least get the process started. Then, they could watch rates and lock if it gets lower, OR, they could accept the current rate and just feel good that they improved their current position.”

I feel that if the information above is at all accurate, you will want to do something sooner than later. Please contact me by phone or email, michele@wantinsight.com or 913-642-3334.