Predicting Rates: The Newest Vegas Tablegame

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vegas vacation I’m back. Hold your applause please.

It has been several weeks since my last post. I promised the Blown Mortgage cognoscenti that I wouldn’t write posts unless I was moved to do so. I should probably be moved more often, but I digress.

The past four days have been a whirlwind at Brown Ram Mortgage as they have surely been elsewhere. I can break the week down into four parts:

1) Rates Hit the Floor- As 30-year Fixed Mortgages hit 5% the leads from prospective clients roll in real time. My partner and I brace for the windfall of new applications.

2) Existing Clients Want in on the Action- After sending out a flurry of applications to potential clients, old clients come calling with one demand: they want in on the action. Many of those clients whose rates have not changed as a result of the Fed Rates Cut (i.e. 99% of them) heard the news on Good Morning America about “rates being cut.” Why can’t theirs be cut too???

3) Pleading for Clients to Send in Their Applications- My partner and I hit the phones pleading with clients to take advantage of our free 30-day rate lock. “We can lock the 5% for free for 30-days. Worst case scenario you get the 5%, with the best case being a continuing drop in rates, whereby I will move you into the better loan.” Our fax sits quietly at its desk, waiting to be called upon.

4) Mortgage Rates Return to Normalcy (and by normalcy I mean still well below historical averages)- My partner and I call each potential client to let them know that we can no longer honor the rates on the applications due to back-to-back midday rate changes. Tears well up in our eyes; defiant prospects point to another “rate cut meeting” at the end of the month. Frustration brews a cup of coffee in our office kitchen.

So why did people wait? Why did they not send in their application and lock their interest rates at 5%? Why did homeowner’s who could merely swap their 6.625% for a 5.625% without cost hold-off??? Because Predicting Rates is the Newest Vegas Table Game.

This forum has already been used to bemoan the fact that everyone is an “expert” on mortgages, especially those people who aren’t involved in the industry at all. If I knew as much about my potential borrowers jobs as they knew about mine, I would be a qualified auto-mechanic, doctor, lawyer and geologist all at the same time! That mortgage arrogance, as I would like to deem it, is certainly part of the problem. However, there is a greater problem which is greed. Much like at the blackjack, craps or poker tables, mortgage shoppers always want more. Cutting their rate by .5% or even 1.25% isn’t enough because they want more. And much like that friend of yours who “knows how to win at blackjack” because they read a book, each mortgage shopper has the inside scoop from their trusted source about the direction of rates. “I heard on the_________(radio, TV, neighbor, newspaper, etc.) that rates are going to go down even more, so I am going to hold out.”

Well, I have heard that if you double down on 11, split 9’s or higher, and hold on 16, that you can win more money playing blackjack. But, I can count on one hand the amount of times that advice has panned out, so I’d rather take the guaranteed money (or savings) and push away from the table.