It's one of the hardest parts about shopping for a mortgage. As you do your homework, as you learn about loans, as you cost-compare, the very basis of your comparison is shifting.

Mortgage Rates Move All Day, Every Day

Mortgage rates are random. They change a lot. And with high velocity.

Just last month, mortgage rates changed every 4 hours, 6 minutes on average. We can infer there's a lot of instances when rates change faster than that. On occasion, it happens twice in an hour.

And here's where the problem comes in. We all know you're supposed to shop for the "best deal", but defining the "best deal" is next to impossible for the layperson.

Good Faith Estimates are supposed to make loan comparisons easy, but -- as I hear from clients -- they don't. And while you're trying to decipher which loan is cheapest, or lowest cost, or most appropriate, or whatever, mortgage rates are moving.

Good Research Matters. Good Luck Matters More.

When you shop mortgages, you find that rates and fees can vary from bank-to-bank and broker-to-broker. Finding a "good mortgage rate" can end up saving you 1/8 percent on your rate and/or a few hundred dollars in fees. That's a big win.

However, when it comes to getting the best mortgage rate possible, you're going to more than good research skills.

You're going to need good luck.

For people in Cincinnati, Ohio, Leesburg, Ohio or anywhere else, the unpredictable, ever-changing nature of mortgage rates can render shopping for a good one an exercise in futility. You never know what'll happen next.

For example, remember when the Federal Reserve left the mortgage market March 31, 2010? Mortgage markets experts -- myself included! -- said that mortgage rates would instantly rise by a half-percent. Probably more.

On CNBC and other business television, rising rates post-Fed was practically stated as fact. But, when April 1 came around, rates didn't rise. Instead, Eyjafjallajokull erupted and mortgage rates dropped on safe haven buying. Then, a week later, as the volcano ash cleared, mortgage rates were supposed to resume their rise. Only they didn't.

Instead, a debt crisis emerged in the Eurozone and mortgage rates dropped.

Mortgage Rates Are Like A Box Of Chocolates

Since March 31, conforming mortgage rates are down roughly 0.250 percent, according to Freddie Mac's weekly mortgage rate survey. Even after the "experts" said this would never happen.

It brings us to one of the an important axiom in Mortgage Rate Shopping Theory -- You can't shop for good luck.

• On some days, mortgage rates rise
• On some days, mortgage rates fall
• On some days, mortgage rates stay the same

Occasionally, there are days when rates do all three.

As a home buyer or refinancing household, the rate you get from your loan officer just depends on at what time of day you do your shopping. No Good Faith Estimate in the world can explain that to you.

Nor can a Good Faith Estimate make your comparisons easier.

Turn Your Hard Work Into Good Luck

Since you can't shop for good luck, you can at least shop for good information.

Make sure you're talking to multiple loan officers early in the process and gather as much data as you can -- about yourself, about your home, about the process, and about the drivers of the mortgage market.

By virtue of having these conversations over and over again, two things will happen.

First, you'll get a really good approximation of your closing costs and potential mortgage rates. This is important for comparison's sake. You need to know who's consistently in the ballgame, and who never is.

And second, you'll get a really good feel for the loan officers to whom you're talking. Who's a skilled one, who's a hack, and who never returns phone calls. This, too, is important.

Then, when it's time for you to finally choose your lender and lock your mortgage rate, you won't have to screw around with the shopping process. You'll have your "A List" of guys to call and can choose the one that's best.

Now Go Get Your Rate Quotes!

Just make sure that when you shop for rates, you do it the right way -- let these guys pull your credit for pete's sake. It's not going to harm your score and you need your lenders on a level playing field.

Oh, and when you're shopping, . I'm always competitive and fair.

This recent clip comes from my local paper's business section.  It exemplifies why researching mortgages can be confusing (and annoying).  We look to our newspapers to tell us the truth; to provide indisputable facts.

In this case, the paper misses the mark.

Aside from the spelling mistake in the headline (!), it looks like the local editors pulled irrelevant, stock copy written several years ago.  As we've shown here and here, the 10-year treasury note and mortgage bonds move to the beat of their own drum.

Rates for the 10-year treasury do not correlate to mortgage rates from day-to-day.

There's a reason why everyone from first-time home buyers to bona fide investors hate the mortgage process -- the media tells them one thing about mortgage rates, and in-the-game loan officers tell them something else.

The reason this happens is because mortgage rates and guidelines are fluid -- too fluid for even most loan officers to keep up.  It's why you should to question the mortgage news you read in the papers -- beat writers just can't keep up with the pace of change these days.

The best way to get your mortgage market news, therefore, is to go to the source.  Talk to loan officers and ask good questions.  Read blogs, follow twitterstreams, or whatever -- just make sure your source is someone in the business.  And, if you need some follow up, you can always call or .

I answer my own emails and would be happy to help.

Today's lesson from the Washington Mutual's seizure comes in the form of a haiku:

Mortgage guys "retire"
and never tell their clients,
who then miss rate dips.

Story goes like this, folks.  Mortgage guys are leaving the business in droves.  Some leave because their company failed, but many more leave for other reasons.

And when they leave the business, loan officers aren't just leaving their career behind -- they're leaving their client database behind, too.  It's a major disservice to American homeowners who rarely find out that they've been abandoned, their mortgage details forever trapped in a secure database somewhere.

In the industry, we refer to this condition as being "orphaned". 

An orphaned mortgage is a home loan that is no longer managed, monitored or watched for refinancing and owners of orphaned mortgages are at a tremendous fiscal disadvantage versus other homeowners:

• When rates fall, there is nobody there to tell them
• When pricing policies change, there is nobody there to advise them
• When mortgage guidelines change, there is nobody there to make a new plan with them

Consider that 90,000 people left the mortgage industry last year and more will be gone after this one.  It adds up to a lot of orphaned mortgages and a lot of abandoned homeowners.  It pays to know when you've been orphaned.

For example, think back to September 8 when mortgage rates fell by a half-percent.  Owners of orphaned mortgages didn't get the news until the next morning, but by then, rates had already bounced back.  This entire class of homeowners missed the dip.

And then the same thing happened September 15 and 16.  Orphaned homeowners missed the dip again.

Now, you better believe that rates will dip a third time sometime soon.  And to take advantage, you need to have somebody looking out for you.  Proactively.  Markets move too fast to rely on the @mortgagereports Twitter feed. 

So, if your mortgage has been orphaned, take a minute to find somebody who'll "adopt" your mortgage.  Ask a friend, ask your real estate agent -- just ask someone.  And if you can't find a good loan officer on your own, fill in this 4-question form and I'll be happy to take you under my wing.

Mortgage rates and guidelines change every day and a homeowner whose mortgage is actively monitored will always get the lowest rates, lowest payments, and best mortgage planning guidance available

By contrast, owners of orphaned mortgages don't get anything except another monthly payment for the next 30 years.

Here's a secret about rate shopping: all loan officers worth their salt give "great rates" because, otherwise, we'd be out of business.  Most mortgage rates are a commodity, after all, so their levels are set by the market -- not by the lender.

This is why home buyers would be well-served to get past "rate" and get onto the important stuff like choosing a responsible mortgage product, or choosing an appropriate structure.

When we get past the rate part of everything, it becomes clear that it actually matters from where a person gets those "great rates".  This is because in the mortgage business, there's a well-known math formula:

(Great Rate) + (Poor Mortgage Structure) = (Financial Failure)

Now, to be candid for a minute -- if you've never had a quality mortgage experience, this formula reads like a complete crock, I know; structure is silly, right?  Well, I understand that line of thinking so let me add an objection-killer to the mix:

Getting responsible mortgage planning advice comes at the same interest rate and with the same loan fees as getting no mortgage planning advice.  And most times, it gets delivered for less.

People often overlook this point, thinking that loan officers are like lawyers, where more skill means a higher the "bill rate".  This is false -- it actually works the other way.  Truly great loan officers understand that the client-servicer relationship is a long-term one whereas struggling loan officers just "needs to make money fast".

The expert doesn't charge you more for his time because it's not the deal he's after -- it's the relationship.  The expert knows that you'll need 8 mortgages or more in your lifetime and he wants to be the first phone call that you make on all of them; the average loan officer only focuses on the first one.

It's a counter-intuitive twist, but people usually get better advice at lower prices from experts than from run-of-the-mill loan officers.  Remember, the experts don't have to pump up rates or fees to be profitable -- they have their big book of clients that assures them of it.

And so, just like that, we've changed the math formula we look at earlier to something better:

(Great Rate) + (Sound Mortgage Structure) = (Better Outcomes)

Now, for an added twist on the math, remember that "rate" and "structure" are only two parts of the mortgage process.  They're two important parts, of course, but they're not the only parts.  There's also what happens after the rate and structure are set.

And strangely, for as important as interest rate is to a lot of people, many of them tend to forget what their rate is shortly after locking it in.  Instead, what they remember most from their mortgage is the process and what happened after their rate got locked.

Author's note: Next time you're with friends, you can test this theory.  Ask a homeowner about their mortgage rate and they'll fumble.  But, ask them about their mortgage experience and then watch what happens.

• Were phone calls and emails returned immediately?
• Were regular status updates delivered to everyone involved?
• Did the money show up in time for the closing?
• Did the final mortgage terms match the original agreement?

It's the answers to questions like these that define a person's mortgage experience.

In another way, comparing interest rates between lenders is like comparing menus between restaurants -- you never know how good the food really is until after you've eaten.  It's no wonder that trendy restaurants fail at such a high rate; it's for the same reason that loan officers do.  All packaging, no product.

So, because rate and fees are generally within a tight range from lender to lender, it tells us that home buyers may be better served to shop for expertise instead.  And if you're not sure whether your loan officer is an expert in his field, chances are, he's not.

Expert loan officers will often give better service at a lower cost than their peers, and they'll also give you piece of mind for a smooth closing.  And in the end, it's the latter part that matters most -- the lowest guaranteed rate doesn't matter a bit if the money never shows up at closing.

When mortgage rates fell in early-January, it breathed life into a huge swath of loan officers that were getting ready to leave the business.

It's a terrible turn of events for homeowners and homebuyers.  With everyone focused on rate, rate, rate, the lowest-of-the-low loan officers are in their natural habitat.

I am not knocking low rates, of course.  I've just remortgaged my own home down to a lower rate.  I'm just saying that low rates are only one piece of the puzzle.

Having a low rate carries tangible benefits in the form of a low (relative) payments.  But, as a point of comparison, having a low mortgage rate combined with the right mortgage product is far more important to homeowners.

I won't dispute that low mortgage rates are sexy but -- no matter how you slice it -- low mortgage rates do not create wealth for people without an outside influence.

Turning "low rates" into "long-lasting wealth" requires a well-planned mortgage strategy and solid execution.  Unfortunately, homeowners don't get that sort of approach from the low-rate guy that keeps asking for Good Faith Estimates from competitors so he can undercut them.

Plus, here's a little secret about the mortgage industry: We all have low rates.

A loan officer that advertise "low rates" would be like the Blue Ash Kroger's advertising "We have food".  Of course they do.  Otherwise you wouldn't shop there.

But ordinary people don't understand the mortgage rate part of the mortgage industry and get blinded by the promises of "low rates" .  Low rates are a business standard, everyone.  Not a feature.

Not having a well-formed plan leads to irrational mortgage management including:

• Paying fees to buy down a mortgage rate when you believe mortgage rates will fall in the future
• Converting from an ARM to a fixed when you know that you will be moving in a handful of years
• Walking away from a scheduled closing because somebody offered you a mortgage rate that's 0.250% lower

And this is why falling mortgage rates can be bad for homeowners.  It shifts attention away from the short- and long-term planning process and pushes it into instant gratification mode.

It's the stuff that makes financial planners cry at night.  Homeowners can undue years of retirement planning with just one ill-fitted mortgage at "a great rate".

The swing in mortgage rates over the last week has been astronomical. 

Some mortgage products popped higher by one-half-percent Wednesday afternoon.  You can exactly when it happened on the chart.  And those losses continued through to Thursday, too. 

As money poured in the stock market and the Dow Jones rallied, it all happened at the expense of mortgage bonds and that jarred rates higher.

Quickly.

Now, directly related to the Fed's surprise rate cut Tuesday morning, mortgage lenders are saying inbound call volume rocketed this week. 

Unfortunately, "this week" is too late. 

Read the rest of this entry »

Each year, the mortgage industry loses some of its employees.  Some leave through attrition; some through layoffs; some through natural selection.

When business is growing, lost workers are replaced with new hires and the mortgage machine rolls ahead.  When mortgage business is slowing, new workers aren't hired. 

Collectively, the industry loses experience, wisdom and general know-how. 

A lot of folks look at the situation and say "good riddance".  It's the complete wrong attitude. 

Having fewer qualified loan officers in this country will cost Americans (hundreds of?) millions of dollars.   This is because each time that a loan officer leaves the industry, he leaves his clients and their mortgages behind, too.

Owners of "orphaned" mortgages are at a tremendous cash flow disadvantage versus everyone else:

Read the rest of this entry »

Last week, I implored my readers to turn the tables on loan officers everywhere by prequalifying them instead of the other way around.

The same way you wouldn't invest your money with a guy who couldn't read and interpret financial news, you shouldn't work with a loan officer who fails the same basic test.

The prequalifying question is an easy one:  "Where do mortgage rates come from?"

Unfortunately, the answer most loan officers give is the wrong one and that's terrible news for the borrowers that trust their home loans to them.

Mortgage rates do not come from the yield of the 10-year treasury note, as many people will confidently tell you.  Mortgage rates are determined by the price of mortgage bonds.  Nothing else.  That's it and that's all.

If your loan officer is saying something different, consider the impact that can have on your long- and short-term financial goals.

In my other recent post on the subject, I posted a snapshot showing how mortgage bonds were down in a trading session in which the 10-year treasury note was up.

On that day, mortgage rate shoppers watching the proper financial indicators locked their mortgage rates and got the benefit of lower rates.  Those watching the wrong ones (i.e. the 10-year treasury) watched pricing slip away.

That same divergence has occurred in three of the last five trading days, including today's(as shown in the graphic above).  The trend may continue, or it may not.  Either way, it's important that your loan officer knows how to read and interpret financial news to help you make the best mortgage choices possible.

Let's not forget -- it's your interest rate on the line.

This snapshot comes from my Mortgage Market Guide dashboard.  It perfectly illustrates an important point I make over and over again.

If you want to know in which direction mortgage rates are moving, watch the price of mortgage bonds, not the 10-year treasury note.

Mortgage rates are "made" from the price of mortgage bonds using a mathematical bond formula.  This is fact.  And by exclusion, this also means that mortgage rates do not come from the price of the 10-year treasury note.

This premise is as simple as it is essential. 

Unfortunately, a large percentage of the media, the real estate corps, and <gasp!> the mortgage industry incorrectly track the 10-year treasury note as a mortgage rate indicator instead.  As the majority, these people are consistently pushing "bad information" into the collective consciousness.

And, it's excusable to a point. 

After all, respected publications such as the Washington Post and Business Week tell us that the 10-year treasury is linked to the path of mortgage rates, so we're inclined to believe it. 

The reality is that the mortgage-backed securities market is esoteric; it's foreign to most people.  It's not in-your-face clear what mortgage rates will do when the FNMA 6.000% 30-year moves from $100.34 to $100.36 in a day.  We tend to ignore what we don't understand -- it's human nature.

By contrast, it's not tough to figure out what happened when the 10-year treasury note drops from 4.27% to 4.23%.  This is one major reason why people incorrectly use the 10-year treasury to track mortgage rates -- it's easier to follow. 

But that doesn't make it right.

As a layperson, you are not expected to know why the 10-year treasury note has nothing to do with mortgage rates.  It's a common misconception.  Your loan officer, on the other hand, is supposed to know the difference. 

Your loan officer is an mortgage expert and an industry insider.  He absotively posilutely should know the different between treasuries and mortgage bonds.  And he must be watching the right market indicators if he's going to do his job for you properly.

So, let's hammer the point home.

As of 2:00 P.M. ET yesterday, the U.S. treasury market was rallying.  The bond market looked good from 30,000 feet.  A check into the mortgage bond market, though, showed that mortgage prices were getting killed, off 25 basis points. 

This is about the same time that my inbox starting dinging with new mortgage rate sheets reflecting higher rates from our nation's lenders. 

I wasn't surprised by the reprice for the worse because I had been watching the market slowly slip away on my MBS ticker all day.  I had ample time to contact a few clients and get them locked in at lower rates before the reprice.

But for people not watching mortgage bonds at 2:00 P.M. ET yesterday, everything looked fine.  The market was actually rallying and it looked like a good day to let a mortgage rate just hang out there.  People watching the wrong indicators were unaware that pricing was slipping away with every passing minute.

I once showed a client my live mortgage bond ticker feed and he asked a really simple question: "Why don't all loan officers use this?"  I don't know, I said, it probably has something to do with cost. 

Getting access to real-time market data is not free.  Rather than pay for it, most loan officers choose to "get by" using free sources of data that aren't quite accurate.  Maybe this is why people quote the 10-year treasury so often -- you only have to turn on CNBC to find it. 

The best loan officers are always watching the proper market indicators in real-time.  You wouldn't work with a stockbroker quoting yesterday's closing price, and you shouldn't work with a loan officer ignorant to the mortgage bond market.  After all, mortgage bonds trade just like stocks and change minute-by-minute.

In the game of home loans and high finance, those with the best information preserve the most wealth, so next time you're talking to a loan officer, just ask the simple question: "Where do mortgage rates come from?".  If the answer is anything other than "mortgage-backed securities", end the relationship on the spot -- you deserve a better loan officer than that.

(Image courtesy: Mortgage Market Guide)

A telling tidbit comes from today's Wall Street Journal, courtesy of Dennis K. Berman.  It turns out Harvard and Wharton MBA students do no better than "average" folks in identifying the true cost of owning mutual funds.

In other words, an elite education does not prevent a person from making costly financial planning mistakes.  This is especially true with mortgages.

High-school dropout or Kellogg graduate, you're as likely to choose the wrong mortgage product for your short- and long-term financial goals as the next guy.

It's easy to understand why. There is no classroom syllabus, father-daughter lecture, or homebuying experience that can truly teach you everything you need to know about properly sizing up home loan options and the mortgage market in general.

Heck, even guys who do it every day of their lives get it wrong sometimes. 

If a loan officer that lives, eats, sleeps and breathes mortgages isn't right 100% of the time, what chance is there a lay person with an education from any one of the following:

• 30 classroom hours over the course of a few semesters
• 30 days of reading the news and watching television
• 30 minutes of conversation over Thanksgiving dinner

The best chance that you have -- regardless of education -- to make the "right choices" when it comes to your home loan is to work with a mortgage professional that listens to your short- and long-term financial goals and helps you plan to meet your payment and equity objectives.

You're not going to get that from Ron Insana.  News is news, and it's never personal -- news is for the masses.

Socrates said: "The only true wisdom is in knowing that you know nothing."  Sometimes, we all need to make like Ted Theodore Logan and realize: "That's us, dude."

For even the smartest of "smart shoppers", the process of shopping for a mortgage can be a real challenge.  One major reason for that is the tremendous amount of information dissymetry between the shopper (you) and the shoppee (the loan officer).

No matter how much a person reads in books, newspapers, Web sites or blogs, home loans have a "personal" element to them that makes it hard to generalize a product or strategy. 

This personal effect creates the potential for tens of options that can cloud the "true price" of a home loan.

This is akin to buying a car where each "package" or feature changes what you're truly buying.  Just like you can't compare the relative value of pre-installed satellite radio to a tow-anchor, you can't always compare mortgage options.

But, versus shopping for an automobile, the stakes in shopping for mortgages are much larger.  You're not buying a $25,000 car -- you're buying a financing package that can be 10 times that amount, or more.

Comparison shopping for mortgages has its own rules and even the smartest shoppers are unaware of how they work.  That ignorance can swing the long-term cost of a poor decision well into six figures.

Rule #1: Mortgage rates are in constant flux

Unlike with consumer goods such as cell phones and televisions -- financial instruments do not retain their "price" day after day.  Just like stock prices change day after day, so do mortgage rates. 

There are other rules that you should pay heed to as well.  I've listed them below.

Rule #2: Do your shopping in one day

Because mortgage rates change daily (and sometimes more often than that), be ready to shop and commit in one day.  Reputable loan officers should be able to issue a Good Faith Estimate complete with rates and charges shortly after "interviewing" you.

Rule #3: Compare identical mortgage products 

Comparing a fixed-rate mortgage to an adjustable-rate mortgage is like comparing a desktop to a laptop.  They both serve the same function, but have completely different purposes.  The same is true for variances of fixed rate and/or ARM products

Rule #4: Don't keep secrets from a loan officer

Loan officers need to know exactly what qualifications you bring to the table in order to give you an accurate and fair quote.  If you're not willing to share valuable information including income, assets, and/or social security numbers with the loan officer, you can't expect the loan officer to take you seriously.  And let your credit scores get checked -- if you're shopping on the same day, the credit bureaus protect you.

There's more to it, of course, but this can be start.

Be smart when comparison shopping for mortgages and understand that financial instruments do not operate like digital cameras or mattresses.  Prices change daily and your monthly payment is not set in stone until your rate is locked.

And, when all else fails, ask a friend for a trusted referral.