Friday, June 02, 2006

Careful What You Wish For

As we’ve discussed in this forum many times, economic data and your mortgage interest rate are closely linked.  If you are purchasing a house, which is roughly half the planet right now, then the link is almost a direct one.  If you have an adjustable rate mortgage, and there are some of you out there that do, then there is a similar connection.  At any given moment, we here at The Chris Jones Group are working half a dozen new loans and watching a dozen or so older ones for indications about refinances or rate locks.  I have on my computer the latest bond market data, updated every 5 minutes.  Ray keeps a similarly close eye on things at his desk.  If the bond begins an aggressive move, which lenders define as about .03 on the 10-year bond, then we immediately have to make a call about whether we want to lock the rate for the new loans we’re working.

A word about rate locks as an aside, then back to the original thrust of this post.  Like many mortgage terms, “lock” means different things to different people.  It means different things to us than it does to you.  But in general, rate sheets are posted with a standard lock term, that is, a number of days that the rate is guaranteed.  Most lenders use 30 days, but some use 25, and our current favorite lender, First National, uses 15.  If we send in a “lock sheet” on a loan, that loan’s rate is guaranteed for the term of the lock.  Locks can be extended, but that costs money.  The longer the term of the lock, the more it costs to get it.  For a more comprehensive explanation of this, see this post from a while back.

Na.  When I tell a client that his loan is locked, that means that the Good Faith Estimate he got from me has the rate he’s going to see at the closing table.  Locking with us means that we guarantee the rate.  It does not, incidentally, mean that we have submitted a lock sheet to the lender.  Not sure why I’m telling you this.  We will, after consultation, occasionally decide to roll the dice and not lock a loan.  If the rates rise, then we’re going to eat the loss, but if they decline, we get to make more money.  We take the risk, though, not the client.  “I assume all the risk, is it not fair that I should assume some dough?”, one might say if one were Nathan Detroit.

What this means on a daily basis is that we find ourselves wishing for bad economic news.  Bad news makes bond traders happy (and, because the Fed is bonkers, it means good things for stocks, too) and that increases bond prices and that drops mortgage interest rates.  On at least two loans that we’re working right now, that’s an unmitigated good thing.  One of them we locked with the client, but rolled the dice on with the lender.  One of them is my own home loan.  So the very weak economic news from the past two days means that we’re going to be a couple thousand dollars richer than we might otherwise have been.

But there’s a dark side, and this morning it really bothered me.  I found myself, as I booted up my computer on the market open, wanting to pray that the employment data (as we’ve discussed, employment data and core CPI numbers more than anything else drive the bond) would come in weak.  Normal enough.  But those employment data represent something.  They represent people trying to get jobs.  And here I am, seriously considering asking God to make sure they hadn’t found them, just so I can make another few bucks and possibly get 1/8% better interest rate on my home loan.

So, in the end, I didn’t ask Him.  I’m trying to become a better person, and that didn’t seem to fit with the program.  As it is, the data is weak, meaning that 100,000 fewer people found jobs in April than the markets were expecting.  This is not a good thing.  But bonds are soaring, which is driving pricing for mortgage rates up, meaning that “rates” will drop later this morning.  That’s good news for me.  But I can’t help wondering if one of those 100,000 that are still looking for work might be just down the street, a friend of mine, one of my relatives.  Or one of yours.  I promise you, whatever it means for interest rates, I’m going to be much more careful about getting in their way in the future.

You have to be very careful what you wish for.

P.S. I do absolutely without reservation wish my sister Elizabeth a happy birthday.

P.P.S. I do also without reservation invite all of you to the American Cancer Society Relay for Life tonight at 5:30 (until Saturday roughly noon) at Lehi High School, just off the Lehi Main Street Exit off I-15.  There will be games, prizes, fun galore, and oh, by the way, we’re raising money to stop people from dying of cancer, just as an aside.  Come to the school, look for the checkered flags (that’s our campsite), and party with us.  Walk a lap.  5 minutes.  That’s all we’re asking.