It’s a wild time in the mortgage business…
There can be a wide discrepancy between lenders when it comes to rates and points. Tactics are being used by some lenders to show lower rates which can be misleading. They are likely charging points and/or higher origination fees. Often, the client has no idea they are getting charged extra costs for the proposed rate. There are times when we advise a client to pay a discount point to buy the rate down for the life of the loan. In this market, however, we are not recommending paying points towards a permanent buydown. The market believes a lower interest rate environment will be presenting itself in the future. Paying thousands of dollars up front, to lower a rate that will likely be refinanced prior to the break-even period, seems foolish.
Market volatility adds to the wildness. It is common to see a significant rate delta from day to day (sometimes intraday) and especially from week to week.
There is much debate about when mortgage rates will decrease, but fundamentals show a decrease in rates is typically driven by two factors – global and domestic recession + inflation moving lower. Some would argue that we are already in a recession. Inflation is showing cooling signs as indicated in year-over-year data. Analysts believe a lower inflation number will start revealing itself in the coming months. As we enter deeper into the recession cycle and inflation continues to move down, the Federal Reserve should adjust their monetary policy. This adjustment would be favorable to mortgage rates and provide widespread refinance opportunities.
The mortgage industry ballooned during the pandemic, reaching new volume heights in 2020 and 2021. Volume began to slow down during the first half of 2022 as interest rates rose more than 4% that year. Mortgage rate competition has grown significantly based on the lower volume and sustained higher rates. Many mortgage companies have gone out of business or been acquired due to capitalization issues and a lack of volume. Some mortgage companies are originating loans for minimal profit and even at a loss, just to retain a client and record a transaction. Companies deploying these practices will either be forced to overcompensate and significantly raise margins, or the losses will force them out of business.
As always, we are here to provide insight and expertise in the ever-changing mortgage landscape.