Is it time to lock your Buffalo Mortgage Rate?
Mortgage and Financial Terms
What is the MBS Market?
MBS in MBS Market stands for “Mortgage-backed Securities†and explained by Fannie Mae as:
In general, mortgage-backed securities are commonly called “MBS” or “Pools” but they can also be called “mortgage pass-through certificates.” An investor in a mortgage-backed security the certificate holder owns an undivided interest in a pool of mortgages that serves as the underlying asset for the security. Interest payments and principal repayments from the individual mortgage loans are grouped and paid out to investors.
Read Also: Who are Fannie Mae & Freddie Mae and why should this be important to Niagara Falls home owners?
The mortgages that back a Fannie Mae MBS are held in a trust on behalf of Fannie Mae MBS investors and are not Fannie Mae assets. As a Fannie Mae MBS investor, the certificate holder receives a pro rata share of the scheduled principal and interest from mortgagors on the loans backing the security. Interest is paid at a specific interest rate. The certificate holder also receives any unscheduled payments of principal.
What is “Locking a Rate?â€
“Locking the Rate”
When you lock in your rate you are committing to that rate for your loan, even if the rate drops further. The good news is if the rate goes up, you are all set. It is not good news if you lock in your mortgage rate and the rates drop. So it is important that consumers think about it seriously before making such a commitment.
Treasury Bond
A Treasure Bond is US government obligation that matures more than five years from the date of issuance.
Brian Brady’s Assessment of the Market
The MBS market has seen improvement with the new FHFA seized Fannie Mae and Freddie Mac. An implicit government backing of mortgage bonds became explicit with that single event. The rate difference, or spread as we call it, between government bonds and mortgage bonds, has narrowed from abnormally high margins. This means that mortgage rates dropped as much as .375% since the government takeover.
Read Also: Fannie Feddie Take Over information for Western New Yorkers!»
What does that mean for the Buffalo Borrower?
I think that party is a bit short-lived. The exuberance appears to be a bit irrational and the reality of impending bank failures has worried the MBS market again.
Short-term, I am advising clients to lock-in these low rates and be done with it.
For borrowers with a 30 day time period until closing, Iʼm advising that they lock as well. Rates may spike up and come back down, to these below 6% levels, but I donʼt see a great opportunity for the medium-term to improve upon todayʼs already low rates.
Longer-term, mortgage applicants may find mortgage rates higher than they are today. The realization that SOMEONE has to pay for this bailout will hit everyone, after the election, and Treasury bond yields should rise, pushing the MBS yields, and mortgage rates, higher as well. Not a rosy picture.
So, lock those loans at application. While the current 30-year fixed rate loan offering, with 1% origination fee, is 5.75%, for a conforming loan (6.02% apr), the risk of those rates popping up to the 6% level far outweighs the reward of holding out for 5.625%.
Read Also: How Fallout Could Affect Main Street
Brian J. Brady
World Wide Credit Corp
(858) 777-9751
World Wide Credit Corp
(858) 777-9751
If you enjoyed this Buffalo Real Estate article, make sure you subscribe to my RSS feed! Daily updates to home sales market reports, homes for sale and helpful buying and selling articles are regularly posted on Buffalo Real Estate News. Colleen Kulikowski and the Best Buffalo Homes team of Keller Williams Realty is here to assist you with all of your home buying, selling and investing needs. Just call us today at (716) 650-0051!
The property information being provided is for consumers' personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing.