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Rate Update and Broker Misconceptions

Treasury auctions contained very few surprises, and economic data was light, leaving mortgage rates nearly unchanged last week. The big question remains, what will happen to mortgage rates when the Fed’s mortgage-backed security (MBS) purchase program ends March 31st? The MBS program is unprecedented, making the outcome difficult to predict. Some argue that any rate increases would be modest as the Fed has been gradually reducing the size of purchases, and has telegraphed the end of the program for months. The argument for higher rates rests largely on basic supply and demand. The added demand resulting from the Fed’s intervention pushed mortgage rates lower, and a decrease in demand will naturally lead rates higher. Currently, the 30-Year Fixed sits at 4.625% (4.804% APR) and the 15-Year Fixed is at 4.000% (4.307% APR). The Fed will meet next week, with no change expected for the fed funds rate. The most significant economic data will be the monthly inflation reports. The Producer Price Index focuses on the change in the price of “intermediate” goods used by companies to produce finished products. The Consumer Price Index looks at the price change for those finished goods which are sold to consumers.

Here are some common misconceptions about brokers…

Brokers don’t have to be licensed. This is simply wrong. Mortgage brokers in California are governed by the California Department of Real Estate, and are required to obtain a real estate license, as well as complete periodic education courses to maintain their licenses. Under the new SAFE Act mortgage licensing system, all mortgage brokers must register with the Nationwide Mortgage Licensing System, and complete additional testing as required by the newly formed California Department of Financial Institutions. By comparison, federal and state chartered banks are not subject to state licensing requirements and therefore do not need to have their loan officers licensed.

Brokers have no decision-making power. This is also wrong. Brokers are armed with the same tools as the banks in terms of underwriting and qualifying a borrower for a home loan, on the spot. Brokers have access to the same automated underwriting systems that most banks do. This allows brokers to obtain the same instant approvals in-house without needing to ship the file to the bank.

Brokers are financially unstable. Banks love to portray all mortgage brokers as fly-by-night operations that don’t have the capitalization or stability to be a direct lender. This can be true in some cases. However, there a many brokers that are well established, have long track records of success, are well capitalized and have made the choice to stay a broker.

Brokers are a rip-off. Consumers are conditioned to believe that eliminating the middle-man always yields the best deal. Successful marketing efforts by Costco and other discount wholesalers have led consumers to loathe paying mark-ups and dealing with middle-men. In the mortgage arena, brokers are the discount wholesaler. Brokers actually receive wholesale rates that are below the market that banks offer because they are responsible for their own overhead. A well-managed mortgage broker will be able to pass these discounted rates on to you, the consumer.

Central Coast Lending, Inc.
(805) 543-LOAN

Written by Central Coast Lending - Go to Central Coast Lending's Website/Profile