by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Mortgage rates are volatile today…very volatile. There are two underlying factors contributing to the volatility: suspicion of the credit quality of the MBS market and supply/demand imbalance (more people want money than is offered).
Why am I so adamant about the fact that the ten-year treasury note is not the determining factor of mortgage rates? The statement is factually incorrect. While the two securities often move in concert, polarity can occur and sometimes does; this is one of those times. The ten-year T-note is considered the benchmark, not bellwether fixed-income security. This means that all other securities are compared to the 10-year T-note (we call that the “spread”). It is GENERALLY a guiding indicator of ALL rates, however, in times or crisis or exuberance, it can’t be relied upon for other fixed-income securities’ direction. Spreads to the T-note widen and narrow due to extraneous variables.
The real estate industry is calling for higher professionalism among lending professionals. Some REALTORs, however, are clinging to the demonstrated neglect the mainstream media delivers (check the comments). An argument that bankrate.com is the source of mortgage rate movements, because the “most originators use it”, is akin to suggesting that Zillow.com is superior in home pricing than the Multiple Listing Service.
Mortgage professionals have at least three MBS quote services available:
1- Mortgage Market Guide ($100/month)
2- MBS Quoteline ($50/month)
3- Rate Link ($45/month)
Four originators (Me, Dan Green, Rhonda Porter, Mike Mueller) with a combined 2007 funding production in excess of $100 million, subscribe to MBS pricing. Why? We’re mortgage professionals. We see the need to invest $50-$100/month in the tools that serve our clients’ best interests.
What can REALTORs do today, to help the mortgage industry improve its professionalism? Well, you don’t have to rely on the government to make the world a better place. Get educated by professionals in the know, and start asking loan hacks which MBS pricing service they have.
Would you refer a client to a REALTOR that didn’t subscribe to the MLS? Of course not. Why?
Your clients are much too important. Choose mortgage professionals carefully.
Dan Green says:
To hammer that point home: For most of today, mortgage bond pricing was DOWN while 10-year treasury pricing was UP.
A loan officer watching the wrong indicator would have recommended a FLOAT instead of a LOCK.
This happens quite a bit, actually. Poke around my Web site and you’ll find some easy-to-follow graphics on the topic.
Thanks, Brian, for the post. I like the Zillow-MLS analogy.
February 26, 2008 — 1:14 pm
Brian Brady says:
“Thanks, Brian, for the post. I like the Zillow-MLS analogy.”
There’s nothing wrong with Zillow nor Bankrate; they are credible media companies with outstanding reputations. However, precise transaction execution comes from the interpretation of the raw data by practitioners.
Professionals use those raw data tools
February 26, 2008 — 1:22 pm
Jason Lopez says:
You mean the values on Zillow are not right? Who knew? THX for the info Brian!
February 26, 2008 — 1:37 pm
Mike Farmer says:
“Your clients are much too important. Choose mortgage professionals carefully.”
I had this conversation with Joshua Dorkin to day about choosing service providers carefully — they’re not all equally trained or competent. Thanks
February 26, 2008 — 3:27 pm
Joe Hayden says:
Thanks for the info, Brian. In case I missed it, have you ever done a post that focuses on what specific questions to ask your loan ‘hack’? If you haven’t please consider compiling this sort of information into one post that would help empower consumers.
I can’t remember if it was you or Dan Melson who wrote about the many ways your broker or loan officer can boost their income at your expense. I understand everyone has to make a living, but a little education can help save an unnecessary expenditure, or two.
February 26, 2008 — 4:30 pm
Brian Brady says:
“I can’t remember if it was you or Dan Melson who wrote about the many ways your broker or loan officer can boost their income at your expense”
Could be either of us but more likely, Dan. I write more like a cheerleader for the industry while Dan’s writing is more consumer-centric than mine.
That SOUNDS like Rob Blake
February 26, 2008 — 8:08 pm
Brian Brady says:
“You mean the values on Zillow are not right?”
Hmmm… from the gut. In a word, no. They’re not as “precise” as a professional using the MLS and assessor’s tax records. Bankrate shows historical rather than market data.
In both media companies’ case, they are credible estimates of which way the market is headed over an extended time frame. You can work trends with the data they provide but determining market or execution pricing is best left to professionals using more advanced data.
Data aggregation is only as good as the professional who analyzes it. Even if Zillow were to provide national active listings and Bankrate were to provide live MBS quotes, well-prepared, n experienced professional will offer superior transaction execution recommendations.
Of course, I don’t discount those two media companies’ utility, I use them daily in my preparations and practice.
February 26, 2008 — 8:20 pm
Jason says:
AH, come on Brian my sarcasm was a bit more obvious I hope. 🙂 THX for the response.
February 26, 2008 — 8:56 pm
Brian Brady says:
Naw, I caught it, Jason. I wanted to talk about the analogy more. Thx!
February 26, 2008 — 9:41 pm
Rhonda Porter says:
Thanks Brian. I cannot imagine how a professional could have a mortgage practice without a source to track MBS. Just wait for the next rate sheet with changes? No thanks! Our current market will create a significant divide between those who are committed to their profession and those who are not.
February 27, 2008 — 7:50 am
Dan Green says:
How about this for more evidence (as of right now):
MBS: UP 44 bps on the day
10-year treasury: DOWN by 19 bps on the day
February 27, 2008 — 9:21 am
Brian Brady says:
On point, Dan.
Let me translate what Dan just said. The originators who said to float, yesterday, based on Treasury data, would have costed your clients another .375% in discount points (or about $1000 in closing costs for a $300,000 loan). Today they would have locked, based on Treasary data.
A loan hack, with an eye on the incorrect data, almost guarantees that your client will be a loser (in this volatile market.
It’s only a grand, though
February 27, 2008 — 10:30 am
Robert D. Ashby says:
I must have been fighting jetlag still when you wrote this as I missed it. Great post and it still amazes me how many mortgage professionals say the 10-yr or even the Fed for changing rates.
Of course, there are many that still buy the mortgage coach, then call themselves “mortgage planners” thinking that is the key to it all.
February 29, 2008 — 7:18 am
jono says:
Who should I get in contact with about a states own laws about mortgage broker bonds and as such, how would I get a mortgage bonds form? I life in England and am considering moving to America, don’t know where yet however I was doing some general reading about housing and came across the term mortgage broker bonds and am a little confused, is it a mortgage or a loan to acquire a mortgage?
Also if I want to set up life insurance do I need insurance bonds? Or can I simply open a policy with a company? I’m a little confused by some of the jargon. I am not moving anytime soon but thought I should be aware of things I will need to understand.
March 25, 2008 — 3:07 am
Malok says:
Excellent advice. And your comparison to a real estate agent that doesn’t subscribe to the MLS is spot on. One thing thats actually “good” about the mortgage and real estate markets, is that a lot of the riff raff is bailing out of those industries and going somewhere else where its “easier”. Now, it won’t guarantee a good, quality person – but a lot of the wannabes, are moving away toward greener pastures.
May 16, 2008 — 6:39 am
Sue says:
Its now September and its definitely a challenging market for realtors and loan officers. Yes, alot of the riff raff is bailing out…moving on as they should. No guarantee for quality, but the chances are much better.
September 16, 2008 — 8:20 pm