This week, Josh Lewis and Scott Schang have a timely conversation about the good, the bad, and the ugly about historically low interest rates.
1) Interest rate update -where rates should be and where they are.
2) Smart discussion around what to look out for when looking for a loan. "We want consumers and homeowners to know how professionals talk and how they communicate so you know when you trying to be sold something.”
3) Refinance Red Flags:
- Understanding that the “postcard in the mail” great rate offers are not what they seem. Those are usually “Call center” companies.
- Mortgage companies that don’t work with your individual needs and are only focusing on the interest rate are not having conversations about the best financial decisions for you and your family and structuring the loan in a way that you will benefit over the long term.
- There is a trade-off between the “lowest rates” with inexperienced loan officers in a call center and working with experienced mortgage professionals who work with your individual financial needs, especially if you have complex needs. (Josh shares stories of examples)
4) Why relationships matter when you work with us to help you get and lock in a mortgage.
5) Rates are at the lowest rate they have ever been. Advice to those who are waiting.
Hey, it’s Josh Lewis with BuyWise Mortgage back and you’re gonna notice another face here on the screen. Many of you know him, some of you don’t.
Scott is my business partner in BuyWise Mortgage. Scott Schang is also the founder and business partner with me in Find My Way Home.
In 2007, he created that resource and it’s been through many, many iterations through the years. He and I partnered up, because of our joint commitment to what he had titled as part of Find My Way Home’s mission to educate and empower homeowners and borrowers throughout this process.
So what we wanted to do is just bring him into the conversation and probably about once a week, one of these updates, really talk about the things we have really interesting conversations, or at least for me and mortgage guided, I think are interesting in our office about things that are coming across our desk, things that we’re seeing, issues, problems.
Scott has a really interesting window into the world in Find My Way Home, because a lot of people find us there because they have problems and they reach out to Scott. So, tonight we are really gonna focus on interest rates. If you’ve listened very long,
I’ve probably said this more than once. Interest rate is probably the least important thing in your mortgage transaction, largely because in the internet age, most everyone is in a fairly narrow range.
I like to think, and believe, and know that we are on the low end of that price range, but there are lenders that come in lower on the price spectrum. But again, lenders are gonna be within a fairly narrow range, but right now where we’re seeing like five of the last, four of the last five weeks, we’ve seen the headline on Friday, “Hey, mortgage rate’s hitting all-time low.”
So we’re gonna go into that. Talk about it a little bit tonight, what it means and what you need to be aware of in terms of interest rates. So, you know, Scott, if you Scott, I know Scott’s been watching and those of us that follow we go into, where are interest rates? Where are they moving? What’s gonna happen? Tonight, we wanna talk about what you’re seeing in mass advertising.
Yeah, exactly. I mean, one of the things that always happens when rates drop like this is the vultures start to circle. I don’t really know a better way to say it but you really start to get this sort of, oh man, it’s sort of a predatory force of these telemarketing call center lenders that are set up specifically to do refinances.
And there’s a couple of really huge challenges that come with this, that we’ve seen for years, Josh, is that a lot of these people are just getting hired to answer phones and read a script. They’re not real loan officers, they’re just slam and tryna slam deals.
Another thing that happens, and I’m not gonna throw you completely under the bus, but I know you had a front row seat. You used to run consumer direct at a very large lender and you used to do, used to see mailers used to do mailers. We’re seeing a lot of those today. Why don’t you give us some insight on what that really is?
– We would do three, 400,000 pieces of mail a month and most people don’t realize what that is. We all of the time get questions, myself, my loan partner, Russ, we get the question, “Hey, I just got like four things in my mailbox “Saying I can get a rate of two and a half with no cost.” And you’re like, “Okay, well, let’s talk about what that is.”
That’s kind of the question that you’re asking. How does that mailer end up in your mailbox? Data for those mailers can be either really cheap, even free. A lender can call up a title company and say, “Give me all homeowners in this area.” And they’re gonna send them a disc that has the addresses on it.
That’s the cheap to/ free list all the way to the high end of really expensive data saying, “I want borrowers with a specific type of loan “That bought within a timeframe that have X credit score, “Or maybe they drive this kind of car.” So that’s the type of data they have.
They know credit score ranges. They don’t know your credit score. They don’t know your home value. They kind of have–
-But they know that you’re a homeowner.
-They know you’re a homeowner for the most part, but even renters will occasionally get one that’s wrong. So from looking at that perspective, what you’re seeing there is usually fairly low end data, but it could be high end data. A lot of times like if they know you have a VA Loan, you’re a veteran, you have a VA Loan, it’s a little bit better.
But they know nothing about you and when they know nothing about you, they also know that if they put the middle of the road term that they know most people or everyone would qualify for, they’re not gonna get a lot of inquiries. Their goal is to make the phone ring. So the number that they put on there in the best of circumstances is what the perfect borrower could get.
In most circumstances it’s what no borrower could get because they’re trying to make their phones ring and they know that they can disqualify you. “Hey, your loan amount is not high enough. “Hey, your credit score is not good enough. “Hey, you don’t have quite enough income “For that interest rate.”
So really just know that all those mailers are for, is to generate inbound phone calls to a large call center which those call center staffs are not your expert experienced loan officer. You know, Scott now, you and I have talked that getting the best loan officer is more important than getting the best interest rate, unless otherwise we’re saying, you know, you’re so well qualified that you can go anywhere and can get a loan and even the 22 year old doing his first loan can figure that out.
– Yeah. So are there any other red flags, because I know back in the day, I haven’t heard a lot of it recently, but a lot of these refi shops that would do that kind of, and I’m gonna call it misleading because it’s vague information. It is not an offer of credit to you specifically. It’s just a number that they’re throwing up there.
I know a lot of those call centers used to ask for credit cards on that first call in order to order the appraisal. Is that something that’s still happening? Is that maybe a red flag that people can look out for that they’re not giving you time to understand your options or discover anything. They’re just, they’re going straight for the numbers?
– There’s a couple of things. You know, the big one used to be, they wanted to get your Social Security Number to run your credit because people didn’t want 50 people running their credit. So the first person would pull the credit. Then get them to give you a credit card so you can order a charge in appraisal and as soon as that goes through, then they’re not gonna wanna go to another lender.
Anyone wanting to, I have sort of a, I don’t know, a balance of this of saying, “No, I don’t need to charge a credit card up front. “We need to get all the way into the process “Before the disclosures go out “Before we’re doing anything along those lines. “But what I will say is the more information we have, “The more accurate info we can get.” The best example I have, a lady came in, we use a system called Homebot and we sponsor a lot of realtors and their clients get our Homebot reports in there.
So one of our realtors clients who I’d never spoken with, she contacted us off of that and said, “Hey, we want our home free and clear. “I wanna take some money out from that property “And buy a new one.” I said, “Well, cool. “Well, we have a couple of things here “That are kind of important. “Can we get some basic information “So that I can get you accurate information?” She’s like, “I don’t wanna do anything. “My credit score is perfect, it’s 800. “Can you just give me numbers?”
The more information that we have, the more accurate information we can give you. Credit scores are an important element of that, and for her, that situation and where they were in the process, it probably is enough and it probably does make sense. We don’t need to push for more information.
– But you know that because you’re a professional and the challenge that I think we run into in the feedback that we get mostly is that they’re talking to somebody that isn’t– An interest rate isn’t always the reason to refinance your loan. If you’re in a twining year, if you’ve been paying your loan for 10 years and you get a little bit lower interest rate and you stretch it back out to 30 years, and no, and somebody doesn’t explain that to you, then you’re not making an informed decision.
And that’s really the thing that worries me the most when rates drop like this and those vultures come out, is that they’re just slam bam, thank you, Ma’am. They wanna get through the calls. They wanna get you logged. They want the check mark on their application, on their call sheet and they’re just moving on to the next but they’re not having conversations with you about what is the best financial decision for you and your family and structuring it in such a way that you’re gonna benefit over the long term.
– Absolutely. You know, that example that you gave, borrower sending a mortgage statement yesterday said, “Hey, it’s not a big loan.” So their loan is like $174,000. It doesn’t take much movement on a $500,000 loan for it to make sense. They said, “Hey, we have, not a good rate, “But not a terrible rate’s 4.125. “We know it’s higher than where the market is, “But, you know, everyone we call just says, “Yeah, we can get you a lower rate. “And then we look at it and we’re like, “I don’t wanna give up four and a half years of payments “To save $75 a month.”
So we ran through the numbers and it really is an analysis that someone needs to be able to lay out on paper for you. For them, we came down to one of two conclusions. We can do a custom term and keep the loan, or it was 25 and a half years left and that would have saved them about $65 a month. And a reasonable person could conclude, “Hey, it’s kind of a pain in the butt to do a loan, “Maybe 65 bucks a month isn’t worth it to me.”
We ran through it the other way and said, “Hey, if we roll this down to a 20 year, “Payment’s gonna go up $70 a month, “But we’re cutting five and a half years off of that.” And they’re getting near retirement age, it’s a vacation home. And with that, they’re like, “Yeah, let’s do that. “We can get this thing paid off “And leave another asset to our children. “A part of our financial legacy to our kids.” So that’s really
– Yeah. what you’re not getting in, in a call center. And for the most part, like what I wanna say is, I will always tell people, you pull a hundred lenders, we’re much closer to the cheapest than we are to the most expensive. But, for the most part, we’re always cheaper than the big call centers that you’re seeing on TV, that you’re seeing on radio, because they don’t have a lower cost structure.
They’re paying those inexperienced loan officers less, but they’re spending a ton of money on marketing. If you’ve noticed the biggest lender in the country that you hear 10 of their ads or see, or watch them every day, they never talk about the best terms ’cause they don’t have the best terms. They’re not even close. Now I can say that, I also know a guy here in town that has a call center and they have the absolute lowest rates in the world.
Like I would not wanna take a bet that I could go find a lower rate than him. Now I also know that almost any loan officer in the world is gonna have more experience and more knowledge than his loan officers, but they set up, they don’t tell you that they’re the best. They tell you that they’re the cheapest. They have a good system that will get it through efficiently. So just one way of saying, it’s a balance there of what we’re looking for.
I think most people wanna get close to the cheapest loan, but realizing there’s a trade off in that, you know, no one wants an expensive loan, no one even wants middle of the road. We should be towards the lower cost end of the spectrum, but you don’t want to sacrifice advice and expertise because you know, they’re talking about, with Find My Way Home, all of the inquiries that we get of people who have been misled, lied to, just told inaccurate information by inexperienced people.
– Yeah. Now, like I had this conversation with a borrower today and it was a, they owed $200,000 on an $800,000 property. Then 800 credit score. They had one pay stub and a W-2 and we had an appraisal waiver. It’s the easiest loan in the world. A loan officer doing his first loan could do this loan. So if she wants to shop the universe and find the cheapest lender in the world, there’s almost no risk there.
Anyone could do it. But for most of our borrowers with the little bit they had on ’em, I got another guy came in today, 800 credit score, couple million dollars in the bank and he has six properties. He wants to refinance them all. We also have three business tax returns into Schedule E with seven properties on it. Good luck going to a call center with that. Financially they’re equivalent borrowers, but one’s really easy for a loan officer, one’s really hard.
So looking at those two, it’s just, you know, I would definitely, you wanna get excellent terms, but we also want to validate and value experience and expertise, depending on how complex your situation is.
– Yeah, and, you know, we say this all the time and I say this over and over again. It’s– A lot of the times, it’s not that those lenders are lying to you, it’s that they’re just answering the question that you asked. And if you’re not asking the right question, they’re not gonna understand what it is that you’re really talking about and they’re just trained to say yes. Just like your scenario with your $65 and making that comparison.
And I know from our experience that there’s a lot of times we have conversations and we end up saying, “You know, maybe this isn’t a good time. “Maybe, you’re in good shape. “Maybe you should just try this strategy, “Pay a little bit extra and pay it off sooner or something.” You know, there’s all kinds of scenarios.
But I think this is a really important conversation that we need to have, and we’ll probably going to be having this conversation because it sounds like there was some movement with interest rates that you were talking about, and you’ve been talking a couple of weeks about this spread between where rates should be and where rates are.
And I think you were telling me yesterday that we’re starting to close that gap a little bit and maybe starting to be able to see out a little bit that potentially interest rates are gonna be good for a while.
– The rates, well, the fed yesterday finished their– We have 10 meetings a year, so not quite a monthly meeting. But the Federal Reserve president comes out and says, “We’re not even thinking “About thinking about higher interest rates.”
So that’s part of the reason why you saw stocks struggle yesterday, stock struggle today. They had some pretty pessimistic expectations for GDP this year and next year.
Really low expectations for inflation and expecting to keep rates low for the foreseeable future. So with that, for us in the mortgage business, absolute interest rates. So treasury rates, and then also the rates on mortgage backed securities when a lender pools all their loans together and sells them on wall street, the prices that they’re getting.
So the yields on those are at all time lows and have been, but the spread between those yields and what they’re charging borrowers, has kind of been not at an all time high, but at a high going back 12 years to 2008.
At 2008, the spread between the 10 year treasury and 30 year fixed rates had gone all the way up just over 3%. When all of the forbearance stuff, and coronavirus, and unemployment figures hit, that spiked up to a little over 2.7%.
I need to check in, ’cause I think we should have seen today when Freddie Mac puts their numbers out, we can look at where that spread is right now. Last week was about 2.44.
So we’re down to that 2.4 range, but putting that in perspective, historically the high end is about 2%. So other things being equal, treasuries and mortgage bond prices stay where they’re at right now, We still have about 0.4% that we could move lower in interest rates.
So what’s really important, like talking about that discussion, we have clients last week that were in a panic because we had a really strong ADP jobs report and then a really strong Bureau of Labor statistics job report, Wednesday and Friday of last week. So rates had spiked up.
We’ve kinda moved out of the trading range that we had been and everyone’s like, “Lock my loan.” Well, now everyone, this week was, “Wait, they’re a bunch better. “The Fed came out and said, they’re gonna be low.”
And at the grand scheme of things, there wasn’t a huge difference, but this is what happens when someone goes, “Well, I locked with that guy last Thursday “Because I thought they were going higher “And now there’s something in my mailbox that says, “Hey, call this guy, he can do lower.” It really, it’s a tough one.
I understand from a consumer’s perspective that they wanna get the absolute best and lowest interest rate, but realize that when you ask someone to lock in an interest rate for you, they’re committing to delivering that even if rates go up a half percent.
So you walking out and saying, “Well, Joe down the street didn’t lock me in “And he can get me an eighth of a percent lower…” You gotta think about is that the right thing to do? You bought insurance and then you don’t want to pay for it.
– Yeah, now that’s a tough conversation. You know, I don’t know if a lot of consumers understand how that works and– But if they have, if you have a good relationship with somebody like you, you’re always gonna do the right thing and you’re gonna have a conversation with them.
And if it’s an eighth of a percent or if it’s something, you know, really close, you know, have a conversation with your lender. You don’t wanna bail because you see a blue light special dot around the corner, or you get something in the direct mail, something like that.
Hopefully, you find somebody like Josh that you can tell talking to him, this is a guy that understands this and is looking out for my best interest and always have that conversation and you’ll always look out for their best interest. So, go ahead.
– I was gonna say, and at the end of the day, we’re talking about interest rates and the levels of interest rates. They’re really low and we’re at an all time low. So the thing that I keep wanting to leave people with, I hear people who can benefit from today’s interest rates saying, “You know what? “I’m gonna wait “and see if they go lower.”
– Yeah. And you go, “Okay.” “Rates are at the lowest they’ve ever been. “Mortgage rates, the lowest they’ve ever been “In the United States of America “And there is a reasonable savings for you to have here, “But you wanna wait and see if they go even lower. “If they go to lower, how much lower can they go?”
So all I’m saying with that is I wouldn’t be paying points. We have lenders, the big tele mortgagers are pushing, saying, well, “Hey, rates are at an all time low. “If you pay two points, we can get a low, low.” Well, you’re trading, you know, a couple points of your equity for a super low interest rate that we may get for free in the future.
So I think it’s a reasonable thought that rates may go lower, but we have no guarantee of that. It’s a 50, 50 proposition at best. If you are at a rate that the numbers justify doing a lower no-cost loan today, I would, by all means, investigate that and pursue it. And then six, 12, 18 months, if this stretches on and rates move lower, you haven’t traded a bunch of your equity.
You don’t have a bunch of sunk costs in that loan, you can do it again. Because really, right now, it’s very hard for anyone to say what happens with interest rates going forward. One of the guys, you know, I love following is John Mauldin.
Every year, John Mauldin does his Strategic Investment Conference, brings in literally the smartest people around the world and they get up on stage and they say, “This is what I think’s gonna happen.” And this year he had about five guys who thought that tenure treasuries would go to 0.3 to zero.
So that would give us easily interest rates at two, two and a quarter percent. Also five equally smart guys on stage saying, “This is gonna trigger inflation “And we’re gonna have treasuries back at one and a half, 2% “In the near future.” So really smart people can disagree about this. It’s hard to say what’s happening from day to day.
We look at the technicals, we look at the funny little candle sticks that I like to show here and we make our best decision. And what I like to tell people is, the technical analysis is sort of like counting cards in blackjack. It doesn’t guarantee you’re gonna win the next hand. It tells you when to bet more heavily because the odds are in your favor. So that’s kind of where we’re at.
You know, you and I have run here long, like 20 minutes, so like I said, we’re gonna continue this conversation. I’ll probably do sort of a weekly update with just some basic stuff on Monday nights and then Thursday we’ll come back here and recap.
Like I said, we have interesting conversations, interesting stuff pops across my desk in terms of loan files, things that Scott’s seeing in terms of questions that people are asking on the website, and it’s good information we’d love to share with you.
– And you know, one thing that we always talk about on Find My Way Home, the reason we do these kinds of things, the reason we do this, and we have these conversations is because we want you, we want consumers and homeowners to know how professionals talk, how they communicate when you’re not trying to be sold something.
Because anytime you pick up the phone and you’re trying to do business with a lender, they’re always trying to get you to do business. They’re telling you what you wanna hear, and they’re tryna tell you.
So hoping that being able to have these conversations, sort of anonymously, we don’t know who’s watching or what they’re paying attention to, but now you have sort of this foundation as contrast for, if you end up getting on the phone with somebody that doesn’t know what they’re talking about, you’re gonna think back to what Josh was talking about and you’re gonna be like, “Well, maybe that wasn’t the perfect way to go.”
– And you know, one of the things that I always like to say, Scott, when you were talking, that’s magic you flipped around. Now I can read your, “Home Sweet Home,” over your shoulder.
– I’m using, this is actually really cool. I’m using my iPhone as a webcam and a phone call just came in and it froze and I was like, cool, that’s my opportunity to– I forgot to flip it so you could read my —
– I thought you’d jumped up and hoisted around, but what — What I was gonna say to close this, is numbers never lie.
– Yes. People sometimes do. I don’t wanna say people always do because they don’t, but people can try to mislead you. Ask for it in writing, look at the numbers, look at the comparison. You know, people can give you incorrect numbers or not follow through on the numbers they deliver, but they should be able to provide them to you in a written format and walk you through them in a way that you can understand.
So again, we only do loans here in California. There’s 49 other States in the union. The internet is worldwide. So if you’re watching this outside of California, we have a big network of folks we can connect you with. If you’re in California, I always love to have these conversations and I am more than happy to review the numbers.
And I don’t ever wanna steal a loan from someone who’s doing a good deal for ya. If you just want some peace of mind and say, “Hey, here’s my loan estimate. “Does this look reasonable? “Does this look right?” “Yeah, it does. Or “No, you’re paying too much for that loan or, “Hey, there’s a better option for it.”
So don’t ever feel bad about getting a second opinion, respect the person that’s doing a good job for you and giving you accurate information. If you get a second opinion and the second guy wants to come in and say, “Hey, I can do it for $400 cheaper.”
Again, respect the relationship and the time and the effort the first person gave ya. It was $4,000 lower, then you’re probably gonna go with the guy that’s $4,000 lower, no matter how nice and wonderful the first person was.
– Yep. Actually–
– So all right,
– We will be back. Thanks for joining us, Scott. We’ll be back next week. If you have any questions for either of us, reach out, you can post messages and questions here, or just check in next Monday and Thursday and let us know what we can do for you. Alright, have a good week.