Email spam sent to mortgage brokers this morning. They are offering 180 day (6 month) rate locks.
Remember a company like that is going to do what it does to maximize profits, period, and then it’s the job of the marketing department to spin it in such a way that it’s a positive. Do not get distracted by the “great option for clients looking at…” part, that’s just the marking folks putting a spin on it.
Little picture context: Very early in the pandemic, when the streets were empty and the world was ending and no one knew what was going on, that same lender basically only did 15 day rate locks. You couldn’t lock the rate (without paying a very steep penalty) until appraisal was back and the loan was fully cleared to close. If someone wanted to work with them, the answer to “what will my rate be?” was “*shrug* I dunno, but please send all this paperwork in and pay for an appraisal, we will find out later on.” So this is a full on about face in lock policy.
More Context:
If you do a 6 month rate lock today at say X.375% for a given scenario and amount of fees, and then rates fall, to X.000% for same, in 5 months, they get to do an internal re-lock and sell that mortgage for a premium based on future-current market conditions (Wall Street will say “Oh, rates are X.000% and you got a bunch of suckers to take X.375%? TAKE MY MONEY DOT JPG” when buying a mortgage backed security full of that). They might do an illusionary “float down” and offer you X.25%, but they still come out ahead, bottom line (this is how all “float downs” work, at literally every lender I have ever encountered that offered them).
And if rates go the other direction, they would either just hit their normal profit margin on the back end sale, or maybe take a slight loss. There are also rate lock insurance policies companies like this can take out, so if they lock a bunch of loans, which then have buy orders placed for them by hedge funds (etc), and they do not deliver that product, in the promised volume, at the promised interest rates (your rate = someone else’s ROI) to Wall Street, resulting in penalties, the insurance covers a significant portion of that cost (>70% loss coverage is my ballpark understanding, I am a “little guy” and not a Chief Financial Officer of a firm with 20k employees, for the record). Naturally the costs of these insurance policies are passed onto the consumer, potentially causing pricing at times like this to be worse than it otherwise might be. It is of course not an even hedge, they are smart and have the cards stacked in their favor either way.
But most of those cards are stacked towards them gaining the greatest advantage should rates fall by year end.
Note: this isn’t a Quicky pitch. Whatever your scenario, whatever the rate, calling Rocket/Quicken will typically result in you paying 1.5 to 2.25 points above market norms in fees, for that exact same rate. Click on “legal disclosures” here and read it for yourself in the small print — 2.25 points as of today, 3.29.2021. Rockets are expensive.
Unrelated to Quicken, Barry Habib is a guy that has multiple crystal balls. There is a mortgage industry “crystal ball award,” the trophy is a literal crystal ball, and he’s won it several times. His speaking things are mostly sponsored (he gets big bucks to do a webinar for your organization), and I do not think they are accessible to the general public who is not a member of this group or that as I am. He also thinks rates will go up for a bit, but by year’s end they will be somewhere between whatever high point they reach in coming months, and the low points of 2020.
ACTION ITEM FOR HOMEBUYER interested in day-trading their home mortgage (which you of course should not do under any circumstances, and making such a choice based on some idiot’s thread on reddit is certainly not advisable): Instead of asking about the rate and APR, ask about fees. How low can you get them? Is $0 available? How about -$1000, what if I have the lender covering my appraisal fee and some title/escrow charges? Waffling between $0 in lender fees and -$1000 is a choice between how big you are willing to bet that both the crystal ball dude, and the largest lender in the country by volume, are correct. Right now, paying points, paying an underwriting fee greater than zero dollars, buying down your rate, etc, is a bet that both crystal ball dude and Rocket are wrong (2.25 points right now, as disclosed in the above link, is certainly absurd – for a $500k mortgage, that’s $11,250 in junk fees!). If you believe you will only have a mortgage for 7 or 9 months, the rate matters not, the lowest fees is what matters more than anything…. you never get back any fees paid, but by contrast you could redo the interest rate with a refi. Note also, as an FYI, that “take a slight rate bump for lowered fees” will have a greater interest rate impact for smaller loan sizes, and a smaller interest rate impact for larger loan sizes.
IF YOU ARE A PART OF THE FOMO REFI CROWD (“omg rates going up get in now while we can!” — my personal March 2021 volume was bigger than any month in 2020, even though rates are up right now relative to most of 2020, FOMO is the only explanation) – my horrible advice that you should ignore is probably about the same, especially if your interest rate starts with a 4. If all this future predicting is wrong, and rates go back up to 2013-2019 norms, you will at least be glad you locked in something and didn’t miss out entirely (if you’re refinancing now, that means you just spent literally an entire year trying to time it exactly right, and where did that get you? Right where you are at, wishing you’d taken what was offered 3 or 6 months ago!). And if the crystal ball guy and Quicky are right, no biggie, you didn’t pay a whole lot in fees, no major reason to kick yourself since it was a cheap refi after all, so just do another refi when/if it does come to pass that rates drop.