3 September 2010 – Einstein once said, “Put your hand on a hot stove for a minute, and it seems like an hour. Sit with a pretty girl for an hour, and it seems like a minute. THAT’S relativity.” This concept is very important to this commentary as relativity is the guiding principal from which to evaluate the rate roller coaster we saw this week. On the one hand, rates did rise about 0.125%. On the other hand, the rise was from the lowest mortgage rates in history.

As the Dow slipped below 10,000 early in the week, rates for Fannie Mae and Freddie Mac conforming 30-year fixed rate mortgage loans averaged 4.125%. This was a boom for borrowers with loans in process who were poised to lock. A flood of not-so-bad news in manufacturing, housing and retail sales, however, was enough to incent investors to emerge from the safe confines of the bond market into equities toward the end of the week. This pushed mortgage lending rates up a bit with lenders offering 4.25% to the most qualified applicants. The stock market rally, however, may not last as the overall economic situation, especially regarding employment has not changed.

PREPARATION IS KEY TO SECURING THE BEST MORTGAGE RATE

The best overall advice that I can give to those considering a transaction is to think like a boy scout and be prepared. Getting the best rate is a matter of keen timing and most loan approvals are good for at least 30 days. This can be extended with updated documentation. This strategy not only allows prospective borrowers to pounce on the best rates as they emerge, but also to secure shorter lock periods and the better pricing that they bring.

I am recommending any of my clients closing within 15 days to LOCK their rates as we have no way of knowing whether this rally in equities will last a day, a week or a month. For clients closing more than 15 days from now, I am recommending FLOATING as even a sustained rally will likely be bumpy enough to provide opportunities to LOCK at favorable rates.

June 1, 2010
As of today, Fannie Mae will now be requiring all loan applicants to run a second credit report right before closing on a real estate transaction. Not only will the credit report be required with the original loan application, at closing Fannie Mae will now require a second report to be generated. If the credit score is one point lower than the original score the loan will not be funded.  The loan will then go back to underwriting for further scrutiny. This is serious business for those purchasing a new home and are planning on moving in with new furniture. With this new policy it would be wise not to use any form of credit. For example, do not head out to Costco and run up a large bill and put it on your credit card prior to closing. A larger charge on a credit card can drop your credit score.