The Loan Lady Blog

In the first part of this month rates jumped unexpectedly.  We had been lulled into complacency as rates remained very low for many months.

Even though rates are still very low in a historical perspective, borrowers who were looking at at  rate of 4.75% to 4.875% were devastated by a half percent increase.

The government has been working hard to keep mortgage rates low, and will continue to do so.

The reason why is pretty apparent. Although the stimulus package will put lots of dollars to work, there’s nothing quite like millions of homeowners having $300-400 extra every month because they refinanced into a lower rate. There’s nothing like these lower payments to help families pay their bills easier or to have a few extra dollars they can spend. Also, with home affordability at an all time high buyers are back IN THE MARKET

And there’s nothing quite like it to stimulate the economy.

The Federal Reserve has been buying hundreds of billions in mortgage backed securities, and they’ve been buying every day of every week.

Like with anything else when someone is buying huge quantities, it drives the price upwards. Higher prices on mortgage securities mean lower interest rates on mortgages.

When you look at the Fed activity, it looks like 4.5-5.5% is the level they’re trying to maintain. Rates bounce around within that general area, but when they get a little too high, the Fed is driving them down. We are seeing now that rates are at 5.5% which is the higher end of the fed’s desired range. Watch for rates to move lower in the coming days.

A big part of why they’re doing this is that the economy is still fragile. It doesn’t feel like we’re in free-fall anymore, but foreclosures are still raging through the land and layoffs are still occurring.

Lenders and the government are working closely together towards the same goal: Keep rates low, knowing that refinances and lower monthly payments will go a long ways to repairing the economy.

And they absolutely will do so to keep rates down and get the economy moving again.

We recently worked on a loan in my office that was almost ready to close, when an underwriter reviewed the appraisal photos and asked about the back wall of the house.  Apparently it looked like a climbing wall.

Underwriters are now forced to scrutinize every little thing and question anything that is out of the ordinary, due to more strict guidelines.  The underwriter did not know what to make of the climbing wall.  She requested that the appraiser return to the property to investigate further and take additional photos.  This was, of course, at a cost to the borrower.

When the appraiser verified that it was indeed a two story climbing wall, the underwriter became concerned of the liability this would impose. Of course, this would be the homeowner's personal liability and have nothing to do with the house, but she could not think of any other way to object to it and she knew she should object for some reason.

Finally, she requested that the appraiser certify that the house remained sound structurally even with the climbing wall attached.  The appraiser did not want to supply that certification since she was not a contractor.

We got underwriting to agree that a letter from a licensed contractor attesting to the soundness of the structure would satisfy this loan condition and, luckily, the homeowner was someone who dealt with contractors on a regular basis.  We got the contractor's letter and that condition was cleared.

The point of the story is to once again illustrate how picky underwriters have become.  If something about a loan is outside the norm, they question it and require additional documentation and explanation.  This often comes at a cost to the borrower and drags out the loan process.

I like the fact that we are back to the days where people have to actually qualify for their financing, but sometimes the restrictions and requirements get a bit absurd.