November 14th, 2009 10:44 AM by Eric Fang
As "predicted", the ARM rate was lower Friday Nov 13th. The main reason is not the MBS trading push the rates lower. Personally, I think it's the lender's competition for the "qualified" borrowers push the rates lower.
Everyone know the refinance boom will be over soon, the loan originators know(or should know), the lenders know also. And the rate will definetely go higher next year, even a little bit higher. The profit margin on these ARMs for the qualified borrowers(all 750 FICO, low 20% DTI, low LTV 40% or 50%) is huge, the lenders will have almost no risk at all.
So that explains why the ARM rates was lower last week. We may see both ARM and fixed rates even lower more in the coming weeks, but the party will be over soon.
The interesting thing about this refi thing is that qualified borrowers refinanced a few times and get the benefits of this low rates; but those who need the help most could not refinance at all, or with huge fees or much difficulties.
For the last a few weeks, I tried to setup the system with the lender to help some of my borrowers to get the loans refinanced. First, we tried flagstar Freddie Mac Open Access program for the 125% loan with Freddie. We had the loan just started and on Friday Flagstar announced that they will only refiance upto 105% LTV. And then I tried with citi mortgage, they said that they only do loans up to 125%(or 105%) with their own clients. For other Freddie Loans, the maximum LTV is 95%.
We know Obama adminstration is trying to help those "underwater" properties refinanced, but still only a few could do it, especially those with Fannie Mae. But for others, it will be a long road ahead.
For this mortgage industry, the refinance party will be over soon. The loan origination volume is expected 50% to 60% lower next year and the rate is expected to be 0.5% to 0.75% higher next year. We will see some loan orignators will not survive and leave the business over the next a few years when the interest rate will definetely "inch" up. We've already prepared for the industry change. How about you? As a borrower, now is the best time for the financial planning(mortgage and other investments).