How Mortgage Rates Went From (Relative) Riches To Rags In 30 Days

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You are about to read a 3-minute summary of the last 4 weeks in mortgage lending. 

It's the second-best 3-minute summary you will get today -- the above recap of Airplane! ranks #1.

• January 21, 2008: While U.S. Markets are closed for Martin Luther King, Jr. Day, international stock indices plummet on fears of a U.S. recession and Société Générale's unloading of €50 billion in European equity derivatives.
• January 22, 2008: The Federal Reserve makes a 0.750% surprise cut to the Fed Funds Rate confirming economists' fears of a U.S. recession.  Mortgage rates briefly plunge to their lowest levels in more than four years.  This is the low point.
• January 23, 2008: Stock markets finally respond to the Fed Funds Rate cuts, swinging 631.86 points in the last three hours of trading.  Mortgage rates surge higher and the volume of requests to "lock" rates literally figuratively shuts down multiple mortgage lender Web sites.  Not everybody gets their locks in.
• January 27, 2008: The media starts talking about "low mortgage rates" but they've missed the boat on the really low rates.  That happened on January 22.
• January 30, 2008: At it's scheduled meeting, the Federal Reserve cuts the Fed Funds Rate by 0.500% to help prevent an economic recession.  Long-term mortgage rates rise and start to separate from short-term mortgage rates.  This is because cuts to the Fed Funds Rate eventually lead to long-term inflation.
• February 1, 2008:  January's job report says the economy lost jobs, suggesting that the U.S. economy is already in the midst of its recession.  Fixed and adjustable rate mortgages separate further.
• February 7, 2008 (morning): Jobless claims increase to recession-indicating levels.  Economists now say with certainty that, yes, the U.S. economy is in a recession.  As of today, mortgage rates are about 0.500% higher than on January 22, 2008.
• February 7, 2008 (afternoon): Hold the phone!  Dallas Fed President Richard Fisher says he dissented against the Fed's half-point cut because inflation is not yet dead and he didn't want to "spike the punchbowl".  Mortgage rates abruptly reverse course and roar higher.  Suddenly, the supposed recession is not a given.
• February 12, 2008: Respected investor Warren Buffett makes an $800 offer to a troubled bond insurer, implying that the markets are not as bad as everyone has made them out to be.  This supports Fisher's remarks from Feburary 7.  Mortgage rates rise.
• February 13, 2008 (morning): Retail Sales data shows that consumers are still pushing the economy forward.  This hints that the supposed recession won't last very long.  Mortgage rates rise again.
• February 13, 2008 (afternoon): President Bush signs the stimulus package, adding additional fuel to the economic engine.  Mortgage rates rise yet again.
• February 14, 2008: Ben Bernanke tells Congress that the Fed Funds Rate may need to be lowered again, but he expects the economy to regain footing in the second half of 2008.  And... mortgage rates rise.  Again.
• February 19, 2008: Renewed fears about inflation lead to the largest one-day rise in 30-year fixed rate mortgages in more than 10 years.

So there you have it.  In 30 days, we've gone from embracing recession to fearing inflation.  It's what's made mortgage rates retreat from their best levels since 2003.

Coincidentally, 30 days is also the most common mortgage rate lock period and a lot of homeowners are bemoaning the fact that their rate lock expired yesterday.

See, mortgage applicants whose interest rates were locked 30 days ago found their loan applications in the middle of a giant mortgage underwriting backlog.  More than one person had the bright idea to take advantage of mid-January's low rates.

So now, the loans didn't close within the 30 day window are now are subject to today's pricing; for 30-year fixed rate mortgages, that's going to be at least 1.000% higher.

It's not the homeowner's fault that the loan didn't close during the lock period, of course -- it's the loan officer that should have known better. 

Underwriting turntimes get very long when mortgage rates plunge like they did, especially with the coverage of "low rates" that came from the media. 

As a matter of note, at my insistence, all of my clients took 60-day rate locks last month instead of 30-day (at my expense, natch) -- there was no way I was going to gamble my clients' personal finances on overworked and underappreciated underwriters. 

It's better to have extra days in a rate lock period than not enough.

I'm not the only guy in my line of work who does things like this for his clients.  There's people like us everywhere.  But, it's just all the more reason why homeowners should work with a mortgage professional and not just some dude quoting rates.

Mortgage planning is an acquired skill.  Use your loan officer's skill to help you reach your goals.  If you don't think your loan officer can do that, find somebody else.