Risk Based Pricing

The mortgage rates are great, BUT……….how about those “adjusters”? Currently, 30 year fixed rates are hovering in the mid-high 4% range for 1 to 2 points and the 15 year fixed are about a half point lower in rate. This is what you will see advertised, and that is what we have also. That is until everyone has to start adding in the “adjusters” for perceived risk to the price/points. Currently about the only buyer in the secondary market for Fannie and Freddie loans is the Federal Reserve, and they have pledged only $500 billion. Sounds like a lot until you start looking at the whole country’s mortgage needs. Because of the Fed being the only buyer (see last month’s column), they can pretty much call the shots on deciding any add-on fees. Here is how the adjusters/add-ons work: there is a base price associated for each eighth in interest rate. If the borrower elects to not have the taxes and interest collected each month (impounds) with the payment, there is an add-on for that. If the borrower wants the interest rate to be locked in for 30 days, there is an add-on. If the borrower’s credit score isn’t above 740, wants cash out, or has a loan greater than 60% of the value of the house (LTV) there is an add-on. If the property is something other than an owner-occupied single-family residence, there is an add-on. HOWEVER, if the borrower falls within these tight parameters, then the rates are outstanding! If the borrower is subject to too many “adjusters” (call me and we can price it out together), then they need to take a step back and re-evaluate whether to refinance out of their old mortgage. If you are a buyer, you should snap up the rate; even with all the adjusters they are better than they have been in decades! With all that said, here are today’s rates (base prices):

Fixed rates for conforming loans (under $417,000) as of 01/23/09:
Rates quoted are for 1 point, for 0 points, add a half to rate.
30 year fixed: 4.75% (APR 4.90%), payments are $2,175.27/mo
15 year fixed: 4.375% (APR 4.635%) payments are $3,163.45/mo.