20 August 2010 – Well folks, we may have hit the bottom, at least in the short-term that is. Rates ticked a bit lower than last week Monday and Tuesday, but began a mild movement upward by the middle of the week. This slight change was likely less the result of economic factors than the deluge of applications overwhelming lenders. To understand this, you need to understand that lenders can and do sometimes raise rates independent of the equities and bond markets as the meet their production capacity. This market favors mortgage banks as they can take advantage small variations in market pricing offered by different investors to whom they sell to secure you the best rate. That said borrowers currently should worry less about rate and more about execution.

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MORTGAGE RATES ARE NOT THE ONLY CONSIDERATION

Every boom has an effect on lender capacity. Like any process, the loan process has a maximum capacity and certain constraints. Most of the time, lenders can flex to meet demand, but during a boom, demand can easily exceed capacity. Although they do have a greater overall capacity, these booms tend to hit the large National lenders worse than regional players. If you are considering a transaction at his time, I would advise strongly in favor of using a local lender that underwrites and funds their own loans. In boom situations, they usually run on significantly shorter timelines than their monolithic brethren. This is especially important in meeting a closing requirement to coincide with the expiration of a rate lock without facing costly extensions.

SHOULD I LOCK MY MORTGAGE RATE??

I am recommending my clients lock in the short-term for the aforementioned reasons. Fifteen or more days out, however, floating can still bear fruit as lender capacity stabilizes.