My good friend Bonnie Vasilion offers some insight into mortgage interest rates and what we might expect in the next several weeks. Many consumers are frustrated with the fees and guidelines lenders and Fannie Mae are imposing in order to avoid any risk at all. The truth is, mortgages are a risk at some point. But to deny strong borrowers is putting real pressure on the housing market.
Why? Without getting into too many details, it seems that a combination of “fear and panic” on the part of Mortgage Backed Security (bond) traders regarding reaction to “QE2”, concerns about inflation, appearances of an improved economic outlook, etc. all contributed to an increase in rates.
What next? I know some people are hoping that the “fear and panic” subsides and rates come back down. Anything could happen. However, there is a new issue, besides cyclically higher rates, looming on the horizon that could in fact drive the cost of home financing even higher: Proposed increases in Fannie Mae/Freddie Mac “ risk-based pricing overlays”.
In a December 23rd memo to investors, they described changes proposed for the Spring of 2011. We already have “risk based pricing overlays”, for example, lower credit scores = higher rates, “cash out” rates are higher than just refinancing what you owe or making a purchase, lower down payment = higher rates. The overlays are going to get even pricier, and the proposal has even the most ideal borrower paying an overlay just because Fannie/Freddie says ANY loan is a risk these days. (I read ¼ point per loan, just to “get in the door”: that translates to $ 1,000 on a $ 400,000 loan).
Below is an article I found that discusses this. There is not a lot of information available on this yet, but I will share it as it becomes available.
Boston Herald--Fannie Mae to add more loan fees
What’s the point? As you’re heard me say before, If buying or refinancing makes economic sense to you now, it makes sense to act now. Waiting for lower rates to come back seems much less likely than higher rates and financing costs.