Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
Each week the Federal Home Loan Mortgage Corporation (more commonly knowns as “Freddie Mac”) publishes a mortgage interest rate analysis known as The Freddie Mac Primary Mortgage Market Survey® (“PMMS”). According to Freddie Mac, since its inception in April 1971, their survey has evolved into the foremost reliable, representative source of national mortgage rate movements. The interest rate data and commentary is commonly relied upon by the mortgage industry as well as the media in gauging market conditions and evaluating mortgage loan selections.
The Analysis
Currently, about 125-150 lenders are surveyed each week including – thrifts, credit unions, commercial banks and mortgage lending companies across the nation. The survey is based on first-lien prime conventional conforming residential mortgages. The report reviews the rates and terms from these lenders across the nation for their most popular 30-year fixed-rate, 15-year fixed-rate, and 5 year adjustable-rate mortgages.
These results are published each Thursday, and are then reported-on extensively in the media. The figures are used in several government agency reports, and recorded in many other industry-related publications. Many state regulators use this analysis as a benchmark to gauge common rates and fees, which enables them to monitor when lenders are charging outlandish fees or overly excessive rates.
The Fine Print
Approved Funding has been a participant in this survey for over a decade and knows very astutely how certain details of the survey, its findings, and what is reported, can be distorted by the public or media. Most of the news media forget to mention some of these important caveats:
• Fees. On most weekly survey results, the average Interest Rates being quoted require additional fees and Origination Points. On average, the published rates require about ½ to ¾ of a point extra in fees to get that rate. [Note: A “point” represents 1% of the Loan Amount; ie $3,000 on a $300,000 mortgage].
• Rounding. The “average rate” presented is presented without being rounded up to the nearest 1/8th which most likely won’t be offered by a lender. (For example, if the Freddie Mac Rate listed is 3.98% – the rate a mortgage customer would receive would likely be rounded up to 4.00% because banks only offer rates in multiples of.125%)
• Regional Pricing. Until a few months ago, the survey was broken down by region and the North-East region was always higher than the national average. Today this regional breakdown doesn’t exist, which skews the accuracy of the analysis for the tristate area. Depending on the property state and property location, rates and terms (including loan size restrictions/limitations) will be different. This is common because lenders value the longevity of loans differently depending on each state and will give more favorable pricing to service a loan in one state versus another.
• Timeframe. The survey is actually conducted over a period of one week starting from the conclusion of the previous week’s survey (Thursday) through Wednesday. This is often unreliable in that the interest rate data might be up to 6 days “old” and are being factored into the survey results, and are typically vastly different at the time the survey is released.
The Bottom Line
Ever since the government took over Fannie and Freddie, these weekly announcements are progressively becoming public media campaigns and marketing crusades more than actually a true source of market data that can be relied on with confidence. What is inopportune about these “published rates” is that they often fail to highlight important prerequisites that get the rates to appear very low, and that not all applicants qualify for these published rates as-is. The eligibilities are tied into specific loan-to-value, debt-to-income, and credit score benchmarks in order to obtain these rates.
In a low-interest-rate market such as the one we are in now, many banks are not passing on the full benefit to originators and applicants. This is largely so because they are either at capital capacity and want to slow down business, or because they are building in a small “margin” to help offset their run-off of loans that they have on their books (portfolios) that they are losing to refinancing.
Knowing the difference between a published rate and an actual mortgage rate is critical, and working with a direct lender such as Approved Funding will help you determine what customized and personalized interest rate options are available for your circumstance and financial objectives.
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