What Trader Joe’s And Yogurt Taught Me About Home Loan Scarcity

• Tweet

A favorite question from my clients is "Should I lock my mortgage rate, or should I float my mortgage rate?"  I am firmly in the "Lock Now" camp and have written about this more than a few times.

My standard answer to the questions has lately taken a different spin, though.  I still recommend locking a mortgage rate as early as makes sense, but I am now making the recommendation for a different reason.

In short, lock your rate today because there's no promise that the mortgage product you want will be available tomorrow. 

The market is shearing products like sheep right now.

Six months ago, my clients fitting the descriptions below would have been fine.  Today, their product options are dwindling fast and -- in some cases -- are gone.

• Foreign Nationals / Residents of Ireland, Scotland, England and Europe
• Self-employed businessmen and women
• Holders of home loans greater than $650,000
• Credit scores below 680 and weak assets
• Commissioned salespersons
• First-time home buyers
• Owners of investment properties

Fewer choices means having less chance of finding the "optimal" product for mortgage planning purposes.  Settling for something else will usually transate into higher cost of carrying, higher loan fees, or both.

So, maybe you read me every day, or maybe you found me from the CBS MarketWatch article posted Friday.  Either way, we're friends now so let's talk about my breakfast.

To relate this to real life, I think about the time I went to Trader Joe's and found out that they no longer carried Fage Total yogurt.  What gives!

It turns out that there was an importing pricing dispute of some kind, the pirate-behind-the-register told me.  "We don't know when we'll get it back in stock," she said.  And I was pretty upset -- what if I never get the Greek yogurt again...?

Well, the dispute finally ended and Total was put back on the shelves.  By my count, it took about 4-6 months to work out the deal that brought the yogurt back into the U.S. market.

Now, to tie it all in. 

Would you believe that what happened with the yogurt is just like what is happening in the mortgage market these past few weeks? 

Because there are pricing disputes in mortgage products (e.g. "How much is a mortgage really worth?"), a bunch of mortgage products have been removed from the shelves until the disputes can be wqorked out.

And this is why I recommend locking.  If more questions arise about the worth of a mortgage in the coming days and months, more home loan products will be pulled and the financing options will shrink for those that need it.  The list above is just a starting point.

Eventually, this will all work itself out, but until markets can agree on what a mortgage is worth, we may all have to settle for Corn Flakes.