Did the Government Just Raise Interest Rates?

Did the Government Just Raise Interest Rates?

Broker | Owner | Mortgage Consultant
Josh Lewis
Published on August 15, 2020
Government Tax on Refinance

Did the Government Just Raise Interest Rates?

I wanted to get out ahead of this. We’ll have more analysis tomorrow as we see how lenders are going to react to this news.

With no warning, and with little reason or justification, Fannie Mae just announced a .500 loan-level price adjustment for basically ALL refinance transactions.

With rates already up about .125% this week, this will add another .125% in rate for refinance transactions.

If you’re on the fence or have been waiting for better rates, this probably means it’s time to move now. If you would like to see options, just email your current mortgage statement and an estimate of your credit scores to josh@buywisemortgage.com.

If you are outside of California, Scott and I have a LARGE network of mortgage experts that can help you. Send the same info and I will connect you with an expert to help.

Jeb Smith

Hey guys. Welcome back. It’s Jeb Smith, a real estate broker here in Southern California, along with Josh Lewis of BuyWise Mortgage.

Typically we do these videos planned in advance, but tonight we’re doing a live stream that’s more or less on an urgent matter that was just released from Fannie Mae on a loan-level price adjustment if you will,

Now, this is going to apply to all refinances and I’ll let Josh get into the details of that.

The reason we’re doing this on an urgent basis if you will, and releasing it tonight versus just waiting until tomorrow is that this could impact loans that are originated as early as tomorrow.

We don’t really know that and Josh is gonna discuss that, but I’ve been talking a lot about refinancing, about interest rates over the last couple of weeks.

And a lot of you guys have reached out to me to ask questions. And so, you know, as Josh and I have always said, we’re here to provide value and to help guide you through that process.

And we thought there was no better way to do that than to give you information that is just released. So with that said Josh let’s get into it.

So you basically sent me the memo, if you will. And I’ll let you just take the lead and talk about what it,

Josh Lewis

Yeah. I’m gonna pop it up here just as so you can see it may cause a little… August 12th here today, after hours Fannie Mae releases this. We haven’t seen an Adverse Market Fee on any loan since probably 2010, 2011. Most of them got taken away.

That was after the last downturn. So basically what Fannie Mae is saying is in light of market and economic uncertainty resulting in higher risk and cost incurred by Fannie Mae, we’re implementing a new loan-level price adjustment, and this is the criteria transactions, limited cash-out, refinances, cash-out refinances.

And there’s an exception here that will apply to almost no one. So if you’re refinancing, you’re gonna have a half-point loan-level price adjustment. It’s a weird term.

It doesn’t mean anything to anyone outside of the mortgage industry. And it just says the best example given here, if you take cash out, there’s a loan-level price adjustment for cash out. So you get a slightly worse interest rate. So this is a half-point loan-level price adjustment.

It doesn’t mean you get a half percent higher interest rate. It means you’re gonna get about an eighth of a percent higher interest rate. And why is that important?

You and I have been talking on all of our videos separately and together that rates are at an all-time low. As we’ve seen week after week after week, rates at all-time lows.

In the last week, since Freddie Mac’s last announcement last Thursday of their weekly primary mortgage market survey, we’ve seen banks sort of give back maybe about an eighth of a percent in interest rate.

So if this is implemented tomorrow, it’s another eighth of a percent. So your neighbor that locked the last week, versus you locking this week, if you’re otherwise identical, you’re probably about a quarter percent higher on interest rate.

That means that the interest rates are still fantastic. So we say this is urgent or important. There’s a couple of things I wanna be super careful to tell people about is that it’s not the end of the world.

A quarter percent higher rate is not the worst thing you could face, it’s not the best. And then what you and I are gonna kind of bet around right now is what are the unknowns? What do we do or not know?

So this right here is the effective date, home loans purchased on or after September 1st. Usually when an announcement like this is made, they say loans originated after FHA loans with case numbers assigned after.

This says the loan has to be purchased. So if you call me tonight and say, hey, let’s get going on my refinance, even if we could close by August 31st, it’s not gonna get sold to Fannie Mae and purchased by that time. So that’s one of the unknowns.

What happens to loans that are locked right now? And don’t close by the end of the month and are purchased by Fannie Mae? Does the investor that’s making that loan or selling that loan to Fannie Mae, do they get hit or getting an insured by Fannie Mae or guaranteed by Fannie Mae?

That’s unknown. We don’t know that. So the second question is almost every time Fannie or Freddie, either one of the agencies makes one of these announcements, the other follows suit within days.

So I would expect that right now, we have a loophole for Freddie Mac. I wouldn’t expect that to stay there. I would say here shortly, we’re gonna have it. So that’s really all we know.

I’m sure you and I, once we get some more analysis and in the morning start seeing how all my lenders are rolling this out, how other lenders around the country are rolling it out and what they’re doing with that, then we’ll be able to give you a better analysis. But right now that’s what we know.

It’s Fannie only Freddie likely to follow, probably gonna apply to anyone who’s not locked, probably not going to apply to anyone who is already locked. Lenders can’t really change the terms on your lock that you already have.

So what I would say, I don’t generally like to do this and be alarmist and say, “Hey, rates are going up act now.”

But if you’ve been thinking about refinancing, if we’re gonna have a window here, if you want us to look at those numbers, or if you’re talking to someone else, you want them to look at numbers, give them a call first thing in the morning, I’ll put up my email address here, but email over your mortgage statement and what you estimate your credit score to be, and whether you’re looking at rate in term of taking some cash out, because we may have a window here to protect people that are locked, yeah.

Cheryl just popped up here with a comment, “We would certainly think that anyone locked will be fine.

“They can’t change the terms of your lock after the fact,” but the way it’s written and the way I’m reading it, the lenders that have locked those loans, they’re gonna get stuck with a half-point hit if they can’t get it purchased by Fannie Mae before September 1st.

So with all that Jeb, do you have any questions or thoughts on how this impacts your clients?

Jeb Smith

Well, you know, I mean, you addressed a lot of the questions that I had without me even asking them. And that was, you know if my loan is locked, am I gonna be impacted?

What if I have to extend my lock at the end of you know, 30 days? Am I just hit with, you know, the extension fee to extend the lock or am I then hit with this, you know, this loan-level price adjustment now as well. I mean, I know these are questions you can’t answer, but these are things that I’m thinking of.

Josh Lewis

It’s a great question. I haven’t had time to think it through, but that’s a great question. That’s the first thing I thought that you’d be throwing out there and it’s worth getting an answer.

Jeb Smith

And so another thing is, you know, earlier today I put a video out where I discussed, you know, UWM, right? United Wholesale Mortgage just came out with offering this, this 30 year fixed at 1.99%, but it’s a 3.631 cost.

And so I did a breakdown, like, you know, showed you, hey, you know what that rate gave you on a $500,000 loan and a $200,000 loan. And then I also gave the pricing at 2.875 you know, with no cost and showed you the difference in buying down a rate versus not buying down a rate.

So, you know, that cost, if you will, with say UWM at 3.631 might even be higher tomorrow because of these new adjustments, because they have to be, you know, they’re impacted as well.

So it just goes to show you that, you know, if it makes sense, which I’ve been preaching the whole time if it makes sense and the numbers look good now, pull the trigger, right?

I mean, I’m in the business. I’m telling you on every video that I think the rates are probably going lower, but yet I also told you that I refinanced, you know, it actually just closed. I did a video on why I refinanced, and I told you in that video because it made sense.

And so for me, you know, if, the numbers worked then, and that’s what I’m telling you now, if the numbers make sense, even if you think it goes lower, this protects you, right?

This gives you an opportunity to at least get, you know, what works now and if they do turn lower, you have an opportunity to do it then.

So I don’t know if you’ve had any more time to think while we’ve been doing this, but that’s, you know..

Josh Lewis

No, I would just say the same thing. Before this announcement hit, I locked my refinance for my personal loan yesterday, just cause of what we’re seeing.

I do believe rates are going to go lower, but you know, if you had asked me two months ago, I would say with pretty strong certainty, 75% chance rates are going lower, possibly a good bit lower. Right now, when you have rates down in the twos, I could give you scenarios where they don’t go lower.

They’re still great. They’re not shooting to the moon. This is another little hit of an eighth of a percent. Again, it may be a good thing because I say this, I want everyone to get fantastic rates.

But the number of clients I’ve talked to over the last two or three weeks that have turned up their nose at a 2.99 or a 2.875 they’re no way, the rates are going lower. I mean, people with like 3.754, and an eighth rates that are almost saving at four percent, turning up their nose at that.

So maybe this is something that will spur people to action. What you just said is what, you know, what we’ve been talking about here, that when it makes sense, do it to that loan at no cost, it doesn’t make sense, paying two, three, four points, like some of these lenders are proposing you do, saying that rates are at an all-time low. Rates are incredibly low.

If it makes sense, you know, anyone saying, hey, hold off or wait, or I think this is gonna happen with the elections. It’s foolish. No one knows what’s gonna happen with the elections. Not only do we not know, we don’t know what that would mean.

We can sit here and assume, hey, Democrats are bad for business taxes are going up. It’s gonna be inflation. Hey Republicans, Trump is great for this, that or the other.

You can spin a story that, you know, the only thing we know for a fact is rates are great right now and waiting when it makes sense for you is not a super smart move.

So if you wanna look at those numbers, I’m available, you know. Jeb you and I have connected probably a hundred people in the last month or two with lenders around the country they can also help and run those numbers so,

Jeb Smith

Yeah, so now I mean, for me, the telltale signs are when two people in the mortgage business, oh, I’m not in the mortgage business, I have been in the past, as I’ve told you in videos. I’m in real estate.

I get, you know, I don’t have a dog in the fight here, but when you have two professionals in the industry, both telling you they either locked their rate or they just closed the refinance, even though they think rates might go lower, that should tell you something, right.

I mean, that would be for me, a telltale sign to say, okay, these guys are saying that rates are going lower, but they’re taking advantage of the market. So, you know, again, we’re here to educate you, guide you, provide you with information and you guys can do what you want with it.

But at the end of the day, it’s all a numbers game. And if it makes sense, then that’s when it’s time to do it. I mean, a question has come up now Josh and I’m thinking about it, so we talked about Fannie, we talked about potentially Freddie, which it’s gonna happen with Freddie, right?

Because they follow suit with each other. What about FHA? What about VA?

Josh Lewis

Unlikely. You know, in the last downturn they didn’t follow suit with all of that. They do things more like changing mortgage insurance rates and upfront mortgage insurance premiums, adjusting things that way. So I wouldn’t rule anything out, but I would say that it’s unlikely

Jeb Smith

Got it. Okay. I mean, I think that covers the basis for most people. I mean, as we get more information on this, again as Josh said, there’s a lot of unknowns, a lot of variables here that aren’t mentioned in this and how it might affect.

I mean, again, this could be implemented tomorrow morning and it’s too late to do anything about it at that point. But as we get more information, we’ll do it, we’ll mention it on the updates for this week.

And if you guys have additional questions, comments, leave them below, reach out to myself or Josh directly, and we can add it to the next video that we do.

You guys are good about commenting and asking questions and you know, we always do our best to follow up and get you the info. So I’ll let you finish up here, Josh.

Josh Lewis

As you see we need to get a new banner that has your contact info. I know, especially when we’re streaming on multiple channels right now, when it’s on your own channel, we have that it’s easy for you to get a hold of you.

We need a new banner that does that… But yeah, just the same things. This isn’t the end of the world. It’s not good. It’s unpleasant and unsurprising. You know, one of the comments here from someone, “Hey, the thieves want a piece of the pie.”

I look at it and I go, it’s just, doesn’t make sense to me. Like in, as far as right now, Fannie and Freddie have not suffered from any downturn in the market. There hasn’t been any big loss of loan performance. It does just sort of reek of getting ahead of something here that may be an issue but isn’t right now.

So I don’t love it, we’ll get more information. And either whether you and I get back here tomorrow or wait till Friday, when we have all the information laid out, we’ll be back, get you guys all the details.

And again, it’s not the end of the world. It’s an unpleasant surprise here at the end of the day.

Jeb Smith

Yeah, understood. Thanks for watching guys. Reach out if you need anything.

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