The Fed’s cut to "zero to 0.25 percent" cost of money and non-response in the mortgage markets combined to produce consternation among a refinance-hungry public.

Excepting a frantic hour at no-fee 4.75 percent on Wednesday morning, mortgage rates remain as they have been for 10 days, roughly 5 percent with an inescapable origination fee. And that deal is available only for the best FICOs and loan-to-values.

The Fed’s cut to "zero to 0.25 percent" cost of money and non-response in the mortgage markets combined to produce consternation among a refinance-hungry public.

Excepting a frantic hour at no-fee 4.75 percent on Wednesday morning, mortgage rates remain as they have been for 10 days, roughly 5 percent with an inescapable origination fee. And that deal is available only for the best FICOs and loan-to-values.

These rates are not going lower any time soon, not on a sustained basis, not without extraordinary intervention by the "Obamanauts." Miracles are rare.

The average client simply does not believe the paragraphs above. If I were not a lifer in the mortgage trade, I wouldn’t believe them either.

In the last month, irresponsible media reports, wishful expectation by housing industry survivors, and trial balloons by non-market theorists have made "four-and-a-half" (percent interest rates) a national imaginary fact.

Why are rates stuck? The main roadblock is the $10 trillion in outstanding first mortgages, rates scattered from mid-sixes to 5.25 percent. Toss out the ones that can’t refi (jumbos, underwater vs. appraisal, clogged by piggyback second, stated-income or no-doc underwriting …) and the adjustable-rate mortgages that no longer need to hurry — $6 trillion, anyway. The first $1 trillion, above 6 percent, everybody who bought from 2004-08, is in the money right now, eligible to refi with quick recapture of costs. That volume is equivalent to the total production capacity of the mortgage industry in 2008, severely diminished since the September financial cardiac arrest.

"But refis are just rollovers, not new money …?" The current owner of a 6 percent mortgage-backed security may have little interest in 5 percent or 4.5 percent. The last people who bought those, in 2003, lost money every day since. Worse, the financial system is still "deleveraging" — trying to sell IOUs, not buy.

"But if money doesn’t cost anything …?" The Fed is acting in an emergency. It will not last forever. When it ends, rates will rise, explosively from time to time. The zero-cost money is overnight money, and it’s a bad idea to finance a 30-year loan with overnight money. Long-term Treasury rates are also approaching zero, the spread versus mortgages unbelievable. The Treasury market is the most liquid in the world; when the economy bottoms, today’s Treasury investors-for-safety will be able to dump at little loss. Even top-quality MBS are not very liquid… buyers at this level and below will get killed in the turn, and cannot hedge that risk in a Treasury market priced for a new Great Depression.

"Why is 4 (percent) so hard?" The one and only time that U.S. mortgages reached 4 percent: at the GI Bill rollout of VA loans on July 25, 1944: it went to 4.5 percent on May 5, 1953, 4.75 percent on April 4, 1958, and to 5.25 percent 15 months later. That’s it, the cumulative history of "four-something," all in a very different world. Also, those rates were set so low that the seller to a veteran had to pay two to four points for the veteran’s loan.

"Why doesn’t the government buy, or just make 4 percent loans?" See $10 trillion, above. The total U.S. national debt traded on markets is only $6.5 trillion. One of the awful aspects of our predicament: having borrowed our way into trouble, there are limits to borrowing our way out.

"But my brother-in-law said he got ‘X’ percent!" Bernie Madoff’s clients got into trouble believing one-upmanship fables told by their neighbors. The fibs told in a locker room full of teenage boys about their sex escapades don’t hold a candle to your friends’ tales of their mortgage conquests.

Call me when we hit bottom, will you? Or at 4 percent, whichever. The law of refis: Do any deal that works, recapturing costs in a year or so. Can’t know the future. Lock your rate, then don’t watch TV for three weeks or talk with your brother-in-law.

"But you said rates could crawl lower …?" Yup. It took a year for rates to move from 6.25 percent to the 45-year low of 5.25 percent in June 2003, working off masses of refis at each intermediate stage. Lasted one month.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

***

What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription
×