November 19th, 2011 11:14 PM by Eric Fang
I talked to one client Friday. And he was amazed thatmy blog has so much useful info and how accurately I predicted the rates for the last a few years.
He also said that the prediction of ARM lower ratethe 1st half of this year and the bottom of the ARMrates a few months later were so accurate. And he wished he knew this blog earlier.
I shared with him how I can predict the ARM rates.I think the same way as some lenders did.
At the beginning of this year, the fixed rates werehigher after Nov 4-5th, 2010 low rates(It went backeven to 4.875% for 30 yr fixed rates). And I closedonly 7 loans in Jan, and most of lenders underwriterhad so much free time and they asked me to submit loans to them.
What should I do if I were the lender? I would lowerthe profit margin to have some lower rates to keep theunderwriters busy. Then which program should I pickif I were the lender? Since the fixed rates(tied withlong term bonds) could not be lower, the best targetwould be ARM.
The lenders/investors still can have pretty good marginfor the rates over 2.5% to 2.75%. That's why I predictedthe ARM rates at the beginning of this year.
But on May 3rd, I predicted the ARM rate hits the bottom.And it was slightly up after that.
And what should I do at this moment if I were the lender?I will keep the rate within trading range. 1)Because of the holiday season 2)No direction from the bonds market.It is safe to keep it in the range. 3)Business-wise, everybodyis still busy, not much incentive to lose the profitto attract more business.
I will talk about another more about this topic in the nexta few days.