September 6th, 2011 10:05 PM by Eric Fang
Sorry for not being able to post much on tzlc recently.I saw that there are more and more questions about why the rates not going lower. Hopefully thispost can help you understand a little bit.
1)For most lenders, they will sell the loans(Fannie, Freddie or other investors). So basicallythere are corresponding coupons for the bonds.Sometimes, when the trading coupon is not ready,there is no lower rates. For example, there areno rates lower than 3.25% for 10 yr fixed or 15 yr fixed rates.
2)Lender's pipeline management. Whenever the lendershave enough loans in the locked pipeline, they may not lower the rates to attract new clients,they will close the loans in the pipeline first.And then gradually lower rate depends on the market.
3)Some rates have bottom rates. Like 5/1ARM rate, technically, it can not go lower than 2.25%. So usually 5/1ARM rate 2.25% to 2.375% is the bottom, and thelender's profit margin rate is very low for thoes rates.
4)15 Yr fixed will hit the bottom as well. The currentlowerest rate is 3.25%. And there is no lower couponyet. We will have to see the coupon first before we can have lower rates. IF we can have lower rates, 3%will be the bottom(my guess).
5)For 30 yr fixed, there is no lower rates than 3.75%yet. So it's impossible to have 3.625% rate or lower(even if you pay points) at this moment. Again, untilthose trading coupon is ready.
So someone asked me whether you they can 3.625% for 30yr fixed or 3.125% for 15 yr fixed. Now you know why,there are no such rates on the market yet.