COOP,
What dictates rates depends on who the ultimate buyer of the loan is, and the profit margin before it gets to them.
Most loans that are conforming anount of $417K or less today, are sold to FNMA, FHLMC (or FHA at their limits)
The rates change daily and there are markups along the way, resulting in the net rate to the borrower. The 10 YR bond is an indication of which way rates “should go”, but it doesn’t control the profit margins.
In addition, most people do not qualify for the best rates, which allow for greater profit margins.
Competition keeps the margins low, but the lenders that have huge exposure to risky loans on their books will need to start making larger profits to stay afloat.
(WACHOVIA may have HUGE exposure)
Loans that are “portfolio” are from institutions that plan on keeping them to maturity. They usually only keep strong loans. High credit score, low LTV. Many would rather have a strong 6% loan on their books than a risky 9% loan.
Portfolio lenders need to be competitive, so on shorter term (5 years or less) they are generally in line with other lenders and will also consider jumbo loans, over $417K, however their rates often aren’t as good for terms over 5 years. Institutions that offer 5 YR CD’s know their cost of funds. It’s not worth gambling on longer terms, so their rates are higher so they can sell them off and still profit.
They also offer ARMS which keeps their return in line with their cost of funds at any given time.
In reality, if they could get deposits locked in at 5% for 5 years, they loan it out for 5 years at a higher rate.
The bonus for them is that they can loan out up to 10x what’s been deposited, but if they are keeping the loans, it raises a risk factor.
(WAMU, WELLS and WACHOVIA and others have exposure)
I don’t think that any one lender has the lowest rates all the time any more than saying that one airline always has the cheapest fares.
This morning, Conforming 30 YR Fixed Fully amortized were around 5.875%-6.00% at PAR. 10 YR bond was up .01 today.
FFR was down .50, Mortgage rates my drop a tiny amount tomorrow.
In a nutshell, it’s the best that I can do with my 3rd grade education. I’m guessing that CarlsbadMountainBiker will point out my errors when he has time.
