The Government Controls Mortgage Rates?

September 23rd, 2011

It’s that time again, the time when people seem to think a government edict can control a massive market. I have gotten dozens of calls and emails that go something like this:

“I hear Ben Bernanke is pushing rates down again.”

“I hear the government is pushing rates down.”

“I hear rates just dropped yesterday.”

The government does not control interest rates, unemployment, economic growth, etc. It certainly influences these things with policies, either foolish or positive, but it does not control them. But every time the Federal Reserve tries some monetary gimmick, the whole country acts as if the Fed sets interests rates for hundreds of banks across the country. More on that here from a previous post.

Several Wall Street Journal articles reacting to the Fed’s latest moves said:

“it may help rates a little bit at the edges….”

“The new glut of refinancing will bring about oversupply, and I am not sure who is going to buy all these mortgage-backed securities. Yields may have to rise to convince buyers to buy, which offsets the point of the Fed’s program.”

“This may drop things 10 to 20 basis points, but its not game changing…”

10 to 20 bp’s is about an 1/8% in rate, don’t expect interest rates to plummet any time soon. We are already at unbelievably historic lows, see this article, rates may drop a teeny bit more, but if they do keep dropping:

a. it will be due to market pressures, not Federal Reserve programs.

b. it will be setting new precedent.

And as usual, my best advice for mortgage shoppers looking at rates, don’t try and be a market timer, don’t expect your mortgage provider to drop you every 1/8% the market drops, no industry can continue to drop prices as the price points change. If your rate is high, say at 6%, and you get 4.125% when refinancing, it is silly to think you should be upset and argue to get 4% if rates subsequently drop to that level. The market is absolutely overwhelmed with volume and many service providers are not even able to close these refi’s, I have heard some have stopped accepting new refi applications, and others are having great difficulty and contributing to the horror stories we all hear about in the mortgage industry. Don’t end up a horror story statistic, get a solid referral, ask a lot of questions, provide everything the lender wants very quickly, be happy with your historically low rate, hang on tight, and good luck getting your loan closed.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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