Florida mortgage rates on a standard 30 year fixed loan this week hovered between 4.75%-4.8% for the most part. What is interesting and deserves to be looked at deeper is the fact that interest rates should actually be much lower than they are right now.
The mortgage backed securities market (MBS) which is what sets mortgage interest rates through regular market buying and selling indicates that rates should be in the low 4% range right now. Unfortunately for everyone however, they are not. This provokes the question… why aren’t they then?
Well the answer to this can get quite complicated. In the interest of keeping the answer simple we must look at the state of the mortgage market. It has been dissimated. It is a completely barren wasteland. The survivors are bandaged and wounded. They wnat to survive but they are survival mode right now just to stay afloat. What would happen if lenders offered the rates to consumers as they should be right now based on market conditions, they would be overwhelmed with new loan applications and their entire operation would become bogged down to a crippling slow speed.
The reason for this is simple. In an effort to keep their doors open lenders have had to strip their operations to the bones. They have fired sales staff, underwriters, funders, processors, and every other position from top to bottom. The lenders are looking to make only the best loans which provide investors with the greatest level of security.
Now we see ourselves in a situation where interest rates are so low that investors who have taken a 2 year hiatus are testing the waters again with huge deals to be had. Also people who have loans are chomping at the bit to get a new 30 year fixed mortgage locked in below 4.5%. The lenders simlpy don’t have the capacity to make all of the loans that there will be demand for when rates fall into the low 4% range.
We have a great example of a more aggressive lender that came out with rates in the 4.25% range several weeks ago. Within there hours they had to send out and emergency email to all of their broker partners that they had to cut of their lock desks and issue a new rate sheet with higher rates. They simply can’t handle the demand that is in the market today. Underwriting turn times jump from 48 hours to 15-21 days. The only way that lenders can moderate their pipeline of new submissions is by setting HIGHER interest rates when they have all the loans they can handle.
Normally in a market such as this the lenders would be competitively trying to price each other out to grab more market share. In a normally operating market we would easily have par interest rates of 4.125%-4.5% today instead of the 4.8% that is made available to us.
It is a sad state of affairs and a horribly crippling cycle. The housing market has finally tested a bottom. The interest rates are in place to stimulate buying and refinancing of mortgage loans. However lenders are so gun shy that they only want to lend money to the MOST credit worthy of borrowers.
Their unwillingness to make common sense underwiting of loans and their inability to handle anything but a tiny piece of the business that is available will prolong this housing crash and in turn ther overall market recession much longer than it needs to be.
We are told by our lender partners that virtually all of them are in the process of staffing back up so that they can beging to take on more business. We hope that this is the case because once lenders have the capacity to handle more business the average consumer will finally be able to benefit form the lower rates they are being denied to them for no good reason right now.
We look forward to continuing to ride out this massive tidal wave we call the mortgage lending business and bringing you all the news and insight we can so that we can make it through together.
Knowledge is the best way to prepare ourselves and our clients during these trying times. We thank all of our past and present clients for your support and dedication. We look forward to meeting and exceeding the expectation of our future clients!