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.
What can the Federal Reserve do?
It certainly influences these things with policies, either foolish or positive. But it does not control them. However, 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.”
How low are rates now?
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:
- it will be due to market pressures, not Federal Reserve programs.
- it will be setting new precedent.
My best advice for mortgage shoppers looking at rates is 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. Let’s assume 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 state of the market
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. The things you should do are:
- 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.