For those of you who obtained a home loan or refinanced a mortgage last year, undoubtedly you got a pretty darned good rate. Some of you even got lucky last November and got “the lowest rates in history”. That would probably translate in to a 30 year fixed product around 6.35% APR. Still others held on, just knowing that rates would go down even further. And lost the gamble.
But you may be in for a surprise. If your interest rate ship left port last year without you on it, take heart. It’s possible rates may again sink...to levels not yet seen. What happened? Enron happened.
Not just Enron, the current poster child for corporate corruption, but there are other businesses that may have applied similar accounting strategies. In this case, a company created a bazillion partnerships to hide losses and book income. And your friendly media pundits are now reporting that investors are casting a way eye to corporate financials. To put it another way, people are pulling money out of the stock market in fear of future Enrons. , And you know where people park their money when they take it out of the stock market? That’s right. Bonds.
Over the past couple of weeks we’ve seen a nice price rally in Fannie Mae Mortgage Bonds, driving up the price while lowering yields. Lower yields mean lower rates. Refinance applications have taken a surprising jump lately, typically from homeowners who waited and waited and waited last fall....but lost.
But what happens to the lending industry when rates drop so far, so fast? They’re deluged with business. As are Appraisers. And Title Companies. And everyone else in the mortgage business for that matter. An appraisal that normally takes 3 days can take up to 2 weeks during heavy volume. That’s 2 weeks you’re sweating it out while your interest rate lock is slowly draining away.
In addition, finding temporary staff to handle the additional workload is next to impossible at times. Lenders realize that such refinance activity is short-lived, and hiring additional staff to help with the volume usually leads to lay offs when rates rise. Temporaries can help, but the lending industry is somewhat specialized. Finding unemployed mortgage loan shippers during heavy volume is next to impossible. That means when mortgage rates drop and refinance activity picks up, the entire process will move in slow motion. Lenders simply buckle up and work overtime.
If you’re considering obtaining a mortgage while loan volume is heavy, be prepared. Record loan volumes can also mean slower approval times.
Published: February 14, 2002
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