There's a strange phenomenon happening these days. Maybe it's not so strange. People are going crazy. Not just because the economy is built on toothpicks and people are actually giving up on even looking for jobs but I think that instead of excepting the fact and the truths about the world, people would like to live a "crazy bubble" because in this bubble they can feel safe.
Let's go back a number of years. When I first truly understood rates and could watch them, day to day with some sense of accuracy and knowledge, I was a wreck. I'd watch as each day they'd change. Now when I talk about rate changes I'm not talking about interest rates I'm really talking about the rate pricing. That's why it's never good to ask me, "what did rates do today?" Because I'll give you an honest answer. And unless you're in the business, you won't really understand.
If I looked at the rates and the treasury yield, which has been the most accurate indicator of what rates are doing (not priced but whether they go up or down daily) I can give you an honest answer to the question, "What did rates do today?". There are only three answers to this question. Up, down, or (the unlikely) nothing. With these three words I could go into a five page essay each day on why they did what they did and where I think the rates / pricing are going from here. But that's not the question asked and my answer isn't really the answer you as the consumer are looking for. I assume you want to know what "interest rates" are doing each day. Let me tell you now, NOTHING. On a daily basis the actual rate you're going to get doesn't move. It takes weeks, if not months for interest rates to truly change. A change where I'd say 5% or 5.5%.
I bring this up because back in the day I'd look at rates everyday and see that there was an .125 better in rebate one day or a .25 worse in rebate the next, but in reality the rate I'd give the borrower is going to stay the same. It's gambling for money people. What's worse is you can't turn it off because everyday it changes and affects how you do business. Needless to say I became one of the many mice that follow these numbers as if they're life or death. Trying to figure out when the best day to lock would be so I could earn the highest amount of commission. It would kill you to lock with 1 point back and then the next day you see it at 1.125 back. Oh the humanity!! I lost an extra $500. The rate was the same, say 5%, so the borrower wouldn't know the difference. Because rates / pricing are on a sliding scale, I wasn't going to give a borrower 4.875% because now the pricing is .625 vs .5 back. It would be true the other way where I wasn't going to go up to 5.125 because now I'm making 5.125 and make 1.5 rather than the day before making 1.375. These are the back room games that we all play. It's so easy to get wrapped up into this that it only seems natural that when you are a Broker or Loan Officer you have to start this dance. But it kills you.
Pretend I just gave you a bunch of examples that included Loan Officers trying to juice everything out of their one loan and borrower's reading headlines written by people not in the business that are trying to use RATES HAVE LOWERED as marketing ploys for their banks. A huge cluster of annoyances and stupidity driven by irrational and uneducated thinking. Picture us having that conversation, while I go to the bathroom....
OK I'm back. So here's where I learned the secret. "It doesn't matter". None of it. It's all a distraction. It's all based on lies and greed. If you're a good broker, you should strive to make between 1 - 1.5% on your deals. The pricing will dictate what rate comes from that. If you get a file that is just impossible or you're putting in a ton of effort to make something happen or you're dealing with certain special situations or you just get lucky because the rates are so unbalanced that you luck into 2 points +/- I understand. All of what I just said, doesn't matter. Not to the borrowers. Not to Brokers or Loan Officers who have "pipelines" instead of one or two deals.
This was a long introduction to my main point of having a stomach of steel. For the past month, we've see rates but more specifically the treasury yields go up and down like I've never seen before. The past two days I've seen the rates go up sharply, so in layman's terms they went up .25% in rate (take a step back and really think about that one and how much that costs you). Then today, I've seen it all just come back down. Now the past two days I've gotten calls from LO's and borrowers who've been hearing about rates on the rise and we must find a way to lock the loans in. THIS IS LIFE OR DEATH FOR GODS SAKE!!! As one rude telemarketer told me once, "slow your roll."
For the past month I've been watching these changes. For the weak at heart or uneducated these movements would kill you on a daily basis. I've added this chart to show you what I mean. Look at where we're at today. Even over the last 5 days, there have been such swings that if you don't have faith that everything levels out and that this industry is like every other entertainment industry where there always has to be a story, you'd loose your marbles. BUT LOOK AT THE FACTS. Rates are the same now as they where in November. Yeah we saw a run up during the holiday season, but that's to be expected. I also expect that consumer spending will be up in the coming months. These notes of consumer spending going up will drive rates up in a false sense that the market is stabilizing and people are spending money again. I don't agree. People are spending money because they're not paying their bills or mortgages. If you miss a few credit cards or don't pay your rent / mortgage for a month, you suddenly have 2,000 to buy that new TV. Is your job situation any better, no but they can't take that TV away from you!!!
Just like the past two days, there where signs of recovery only to be blasted down again today by a real estate report that told the truth.
If you look at the first graph, you can convincingly say that rates have gone down over the last year. Maybe about .25% - .5%, at most. If you look at the rates on a daily basis, they haven't gone down. Take a look at the second graph. It shows the madness over the past 5 days. But look at where we started to where we ended. Maybe you could have gotten lucky on hit the low, but more often than not, you've already been sold on a rate so the tiny bit extra is what a good broker would call a bonus. If we've talked and we've agreed that 5% is the rate you're getting, but I choose to not lock a loan in, that's my gamble. I've certainly been on the wrong end of that gamble but sometimes you guess right but at the end of the day the borrower gets what is agreed upon, 5%. Obviously if rates get so much better that we now have to base everything off of a different rate level, things change. A year ago, I'd have quoted 5.25 and now I'm at 5%. Within those 30 - 45 days when a particular loan goes through it's very rare that the market would make such a volatile swing that a borrower would see the rates actually come down. Especially in this market when the lender have priced loans in a way that they are really dictating where loan rates should be at. If we talked on Monday about rates, we're at the same place on Friday.
So you really have to have a stomach of steel if you want to know what happens each day. You also need to comprehend that some days you're the winner and other days you're the looser. The only way to truly make it in this business or deal with your loan rationally so you're not crazed over the period of getting a loan is to agree and come to terms with a rate. If you're happy, go for it and close the loan out.
Lastly, let me give borrowers a little secret. If you're cool and settle on a rate that you can live with, don't be all over the broker about did rates get better or worse since you've locked it. Because it doesn't matter. Do you know the difference between 5 and 4.875% is probably on average only $35 - 50 per month. But that .125 could mean thousands in commission to the broker. I've noticed that not, just me but with other Brokers or LO's that if the borrower is cool and there's a chance or decsion that needs to be made, I'll lean in the borrower's favor. While if someone was riding me constantly for a month about rates and not worrying whether they're going to get the loan I'm going to lean towards making as much as I can. It's just a fact of nature. Like the boss you can't stand. Are you going to volitarily come in on Saturday to work or the boss that let's you get overtime or doesn't ride you all day, aren't you going to be more willing to go the extra mile and eat some pay to make things happen.
"Don't walk over dollars to pick up pennies", "Pigs eat and hogs go to the slaughter" and one from the Coach who recently passed "Things turn out best for the people who make the best of the way things turn out." Maybe not his best but fits our discussion - R.I.P. Coach Wooden.
We're in this job to make money, yes. But I've stayed in this job because of the people that I work for. Most of my clients trust that I'm doing the best job that I can. I've earned that rep because I actually do the best job that I can. I've learned that you can't do the best job if you're trying to make the most money out of every deal and you won't get a good job done for you if you're shopping around for the lowest deal and cheapest rates / prices around. I have to have a stomach of steel to go through the ups and downs of the market. But I also have the brain to know that if McDonald's stock goes up or down $5 in a day, will they stop serving burgers the next day? No, either way they'll continue and for good or bad they'll taste the same. Just like rates. The treasury will go and down each day. Rates will still be posted the next day and more than likely the rates will stay the same.
So how did the rates do today, Friday the 11th of June, they got better. Are you getting the same rate as you where going to get yesterday, probably. It doesn't make sense or maybe now it does. Or maybe as a Broker or LO you should be looking for the next deal and do the best job for your current borrower to just finish and close the loan.
Posts
