By Robert Nusgart
The Daily Record Newswire
The Federal Reserve said it was going to help the economy come out of its doldrums by initiating another round of quantitative easing — better known in economic circles as “QE2.”
QE2 is the Fed’s way of pumping money into the economic system in hopes of eliminating the possibility of deflation. But what is the opposite of deflation? Inflation, of course.
And what is the biggest enemy of low interest rates? Inflation, of course.
So if you haven’t noticed, when the Fed started QE2 last week, bond prices began to drop, pushing yields higher. On Nov. 5, the 10-year bond yield — an indicator of where mortgage rates are going — finished the day at 2.533 percent. On Nov. 16, the 10-year was hovering near 3.00.
What did that mean to mortgage rates? If you were floating your rate at the beginning of last week, you had hoped your loan officer locked you in. Otherwise, you found yourself in the proverbial mortgage elevator going up day by day.
Every lender prices its rates differently, but to give you an example, on Nov. 10, the rate on a 30-year fixed mortgage was at 4.125 percent with zero points. By Nov. 16 it had risen to 4.625 percent, with most lenders experiencing daily repricings for the worse in the afternoons.
Rates found some stability midweek, but certainly are not bouncing off the lows.
But the effect of the higher rates were quickly found when the Mortgage Bankers Association reported that both purchase and refinance applications dropped for the week ending Nov. 12. Purchase applications dropped by 14.4 percent from the week prior and refinance applications fell by 16.5 percent.
Still, the Fed seems to think that this phase of easing will ultimately keep interest rates low. Time will tell. But the bond market is giving its opinion of what it thinks of the Fed’s move, and in the short term it is voting with higher rates.
As for consumers, it just shows how quickly the mortgage market can turn. Dollar-wise, the difference in payment on a $300,000 mortgage between 4.125 percent and 4.625 percent is $89 a month.
And if you were a borrower who was just barely qualifying at 4.125 percent, that change could make the difference between getting a loan or not. But in the context of where rates are historically, borrowers should still be smiling. A year ago I wrote that rates for a 30-year fixed mortgage were at 5.25 percent.
What this all means is that we are still in a very volatile market that can be swayed easily. If you are looking to purchase a home or refinance, any lender who tells you he or she knows which way rates are heading is not giving you good advice. What I tell my borrowers is that the easiest way for them to see where mortgage rates are “trending” is to look daily (or sometimes hourly) at the 10-year Treasury note, because it typically mirrors what’s happening to mortgage-backed securities.
One would think that fraud in the mortgage industry would be dropping as lenders scrutinize borrowers — and properties — with a microscope now. However, CoreLogic, a company that analyzes real estate and mortgage data for lenders, just released its latest trends report, showing that fraud has increased by more than 20 percent since it reached its lowest point in early 2009.
So where is fraud happening the most? Refinancing and the sale of bank-owned properties — known as REOs, which stands for “Real Estate Owned.”
According to Tim Swift, a senior vice president at CoreLogic, fraud risk associated with refinancing grew approximately 30 percent and REO sales posed a greater risk than short sales, with one in every 24 REO sale transactions associated with a fraudulent resale. A short sale is when the lender agrees to allow a homeowner to sell his property for less than what is owed on the property.
CoreLogic, which has analyzed more than 7 million loan transactions since 2005 through the first half of this year, reported that the face of fraud has shifted. Income fraud remains at the top of list with 23 percent, but has dropped by 8 percent as lenders are being more diligent in scrutinizing income documents. On the rise are cases of fraud concerning occupancy, undisclosed debt and employment.
The report just shows why lenders continuing to request every piece of paper, every explanation and every document it thinks it may need from a borrower to render an approval.
It is just a sign of the times.
Robert Nusgart is a loan officer with Prospect Mortgage LLC., which is associated with The Strata Group in Baltimore. He can be reached at 443-632-0858 or by e-mail at Robert.Nusgart@prospectmtg.com. Visit his website at www.RobertNusgart.com for the latest mortgage and financial news.
