Thursday, September 8, 2011

Where's My Super-Cheap Mortgage?

It is an increasingly common frustration. The gap between the lowest advertised mortgage rate and the average rate that borrowers actually get is as high as it has been in two years, save a single week last September. As of last week, the lowest available rate — according to a survey of more than 200 lenders by — was 3.75% for a 30-year fixed mortgage, but the average rate was 4.39%. At the current 0.64 percentage-point spread, the difference in rates could mean an extra $53,000 in interest payments over the life of a 30-year, $400,000 mortgage.
While there is always a spread — not all borrowers qualify for the lowest rate, after all — it is usually much smaller: An average spread is usually around 0.40 percentage point.
It's not credit issues
The bigger discrepancy of late has little to do with borrowers' credit scores, which historically have largely decided what rates lenders choose to offer. Instead, it is more reflective of changes in the way lenders approach their business. Lenders have raised their profit margins by 1.5 to 2 percentage points in the past month, according to Informa Research Services, by offering borrowers slightly higher rates.
Reduced competition between lenders, is it due to Fed?
Lenders say they haven't lowered rates further because, simply, they don't have to. The mortgage market is not the cut-throat business of years past. Most lenders are happy to make mortgages but not at any cost. And there is still plenty of demand given that rates are still historically very low. As it is, lenders are able to make loans that, while still cheap, are more profitable, says Michael Fratantoni, vice president of research and economics at the Mortgage Bankers Association, a trade organization that represents mortgage lenders
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