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Mortgage Rates Fall to New Record Lows
It took a couple of days, but the Fed’s open-ended decision to purchase mortgage-backed securities has finally achieved one of its goals—lower mortgage rates. Having been slightly above all-time lows when the Fed announcement was made, it took a little longer than most analysts expected for rates to penetrate the previous record lows. Now that each step down represents a new record the question becomes; “How low can mortgage rates fall?”
Some analysts believe that mortgage rates should already be significantly lower. An article in the New York Times puts forward the argument that current 30-year fixed mortgage rates “should be around 2.8%” based on historical average spreads between offered mortgage rates and the price obtained by lenders when selling mortgages into the secondary market. The story uses words such as “enigma” and “puzzle” to try to dramatize the reason this mortgage market is different than the past.
The New York Times article refers to potential labor shortages in the mortgage industry as one potential cause of the increased spreads between offered rates and selling prices but then conveniently ignores statistical data in support of that fact, preferring instead to use year-over-year production figures from two banks as “proof” that lenders can expand their mortgage processing capabilities as needed. According to the US Census Bureau the mortgage industry has lost approximately 250,000 workers since 2006. Moreover, the bank comparisons used reflect change from the depths of the housing market collapse. Finally, current demand does not even approach levels hit prior to the crash, making current staffing levels more in-line with historical norms.
The second explanation for higher than hoped for mortgage rates that the New York Times attempts to use to debunk higher rate spreads is higher costs and risks involved in the business of mortgage lending. The failure to see that costs are higher to process and close mortgage loans despite dramatic regulatory action is almost laughable. The failure to recognize the legitimacy of higher margins when facing higher risks (in the form of potential loan buy-backs) gives away the author’s, and perhaps, the newspaper’s bias and unwillingness to let anything get in the way of its desired narrative. According to Peter Eavis, the author of the article, “The banks don’t care because mortgage revenue is ballooning.”
Oh please! The New York Times should be ashamed of itself!
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2012-09-21 08:01:27
Source: http://www.totalmortgage.com/blog/mortgage-rate-trends/mortgage-rates-fall-to-new-record-lows/18072
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