October 18th Moorings Column

Hello and welcome to this week’s edition of Moorings, my attempt to keep you abreast of the current state of the mortgage market. Mortgage rates have remain largely unchanged since last week with perhaps only a slight improvement. A borrower looking to purchase or refinance a home can expect to obtain a conventional mortgage (under $417,000) for around 4.125% with a one percent origination fee or 4.375 with no origination fee.  Keep in mind, these rates are based on a best of the best scenario and are always subject to change and dependent on factors such as credit score, credit history, income and assets, as well as how long you lock in your rate.


Speaking of “locking in” your rate, I thought it might be a good idea to explain how this works and what it means. Essentially when a client comes to a loan officer and applies for a mortgage, we run a credit report and ask for various documents such as pay-stubs, bank statements and tax returns. Once we review the information we can usually either approve or deny the credit package on the requested loan. The only variable is the appraisal.  At this point during this process we discuss the currently available rates with a client and give them a good faith estimate  of what they can expect to pay in closing costs as well as prepaid items like taxes and insurance. As I said above, if a client with a strong financial outlook came in today, and assuming a strong appraisal,  I would quote them somewhere between 4.125% and 4.375% and they decide when they want to lock-in that rate. By locking it in, they are essentially saying that they are satisfied with that particular rate and sign off that they will complete the loan process and move-forward. While it hasn’t really happened recently, the big question people have is “what happens if rates suddenly drop after I lock?” Well unfortunately there really aren’t many ways to get out of a locked rate unless the averages have fallen a considerable amount. As a mortgage banker, we are committing to deliverer that loan after closing to Fannie, Freddie, or one of their large seller/servicers, which is completely standard for the industry, and if we do not deliver we are subject to a penalty for non-delivery. We will lock your loan in for a period of time, usually thirty to sixty days. The longer the time period, the less favorable the rate will be since it’s a longer-term risk for all parties.  Simple.


Last but not least, probably the biggest news in the industry last week was the announcement of a freeze on foreclosures by several large banks, beginning with Bank of America. A number of both positive and negative issues may arise out of this, but currently it’s still to early to make any serious predictions on the longer term effects. One possible issue that may arise is for purchasers of foreclosed homes, albeit it unlikely. I would recommend any buyer of such properties to contact their attorney to make sure that no legal issues could arise from the previous owner. The same goes for anyone who may currently be facing foreclosure. Well that’s it for this week and until next time, Be Blessed and Numbers 6:24-26 be on you.