Friday, May 29, 2020

In case you have not been following the news, I would humbly suggest that the # 2 headline item of the week has been the historically low mortgage rates. The 10-year United States Treasury bond, which is a safe-haven for investors during times of market volatility, has broken beneath a psychological benchmark of 1.00%. Not only that, the 10yr yield dipped to historical lows beneath one-percent, touching historically low levels of 0.923.

Though this opinion is not yet universally accepted or being spoken about, I believe yields below 1% will be a norm over the next few months. Unfortunately, the United States now joins an infamous group of global countries with 10-yr Government Bond yields below 1.00. Those countries include Germany, the UK, France, Spain, Portugal, Switzerland, Japan, Australia, Hong Kong – to name a few.

In reaction to the global epidemic and recent outbreaks reported in the U.S., The Fed lowered its benchmark interest rate by half a percentage point. This emergency action is the first cut between scheduled policy meetings since October 2008 and surprised investors who were waiting for action at the March meeting in two weeks. Again, while I might be a contrarian to this point, I am not sure how “stimulating the economy” to spend more on purchases is actually going to contain the virus.

Unfortunately, a Fed rate cut is not a vaccine. While I hope and pray that I am wrong, the CDC has yet to deploy proper testing procedures, and if this Covid-19 spreads further in the U.S. people will stay homebound and halt going to places of entertainment and recreation, which will further hurt the economy. The stock market might rally in the short term on these Fed actions, and about political news regarding Joe Biden’s recent surge in the polls, but, likely, the sell-off will only be temporary.

Where does that leave mortgage rates and those looking to refinance their current mortgages? One Bloomberg News headline pronounced, “Mortgage Lender Are Hiring Like Mad to Handle Demand as Rates Plunge.” The article went on to write that two top online mortgage lenders are experiencing surging business as never seen before, and are looking everywhere to find temporary fillers for the volume. Interestingly, these online lenders are historically known to offer above-market rates, and if they add new-hires into the mix, consumers might be faced with poor rates as well as poor service.

My advice for anyone who has a mortgage rate above 3.500% is to reach out to a “real person” and have a “real conversation” about your financial situation. Approved Funding offers the same online portals that are available in the marketplace, yet we choose to put people at the frontline speaking with consumers, rather than apps and websites. The opportunity costs, the money lost, the misguidance or misinformation is actually causing applicants to achieve worse terms and conditions than they need to be.

As I disseminated to clients and followers, here are a few critical mortgage tips for handling the recent rate drop. Be upfront about any concerns you might have (income, employment, write-offs, value, etc) Understand that what you think your credit score is, might not be what a new creditor or bank will have as a FICO score. Make sure you know if the new mortgage is truly No Cost, or are fees being rolled into the new mortgage (financed). Find out Float-Down options if rates go down during the process. Be transparent with your Lender about what your thinking and what’s important to you.

Finally, make sure your mortgage advisor is well versed with the mechanics of the MBS market to guide you on when to lock your rate. I had a client tell me that the two lenders who he spoke with that morning, both told him that he needs to have his decision and $1500 by 5 pm or the offer goes up. After quickly reviewing his situation, I was able to offer him a rate 1/8th lower, with no fees whatsoever. Beware of this historical market.

Shout out and Happy Birthday to Efrayim Clair, Chaim Hass, Shira Kronenberg, and Mordy Weinberger.

Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected]