When I originate a loan, my client closes with MBS funds. We, in turn,
sell the servicing contract to the loan to a national investor such as
Chase, TBW, GMAC, etc. They bundle the mortgage securities and sell
them to Fannie and Freddie. This is how lenders such as MSA and
investors such as Chase, TBW, GMAC, etc., get more money to lend to
more borrowers.
In March of 2008 Fannie/Freddie instituted risk-based pricing on the
loans they purchase. All the national investors followed suit by
risk-layering the price of money. This is the same principal that
insurance companies use to rate insurance premiums. There is no longer
the same rate for all borrowers.
For example: A borrower wishing to do a rate and term refinance of a
single-family primary residence with a 760 FICO score and 30 percent
equity may get a 4.875 percent/0 point rate. A borrower wishing to do a
cash-out refinance to 80 percent of value on a single-family with a 709
FICO score would get a 5.625 percent. A borrower wishing to purchase a
second home condo with 80 percent financing and a 735 FICO would get
5.25 percent. Money is priced on a matrix using the combined factors.
The Federal Reserve policy of purchasing MBS that began in November is
committed to continue until June of 2009. This policy preceded the
current administrations most recent endeavor to increase this dedicated
MBS purchase by billions more. This is an effort to allow qualified
borrowers to refinance to historically low rates and qualified new home
purchasers to obtain affordable financing. There are also several
government subsidy programs through current loan servicers to modify
existing loans due to lack of equity from declining values or hardship.
Rates have gone from a summer 2008 high in the 6 to 6.5 percent range,
to a fall range of 5.75 to 6 percent, to 4.75 to 5.25 percent range
now. Money is a commodity and the price can fluctuate daily. The answer
to the question of "What are rates doing?" is that they are going down
and up. Right now they are on the low side.
Rob Tierney owns MSA Mortgage in Waitsfield and lives in Fayston.
