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 their Mortgage Interest Rate notification known as The Freddie Mac Primary Mortgage Market Survey® (PMMS®). The report reviews lenders across the nation on the rates and points for their most popular 30-year fixed-rate, 15-year fixed-rate, and 5 year adjustable-rate mortgages.
According to Freddie Mac, the Primary Mortgage Market Survey has evolved, since its inception in April 1971, into the foremost reliable, representative source of regional and national mortgage rate trends. The interest rate data and commentary is commonly relied upon by the mortgage industry and the media in gauging market conditions and evaluating mortgage loan options.
Currently, about 125 lenders are surveyed each week and the mix of lender types – thrifts, credit unions, commercial banks and mortgage lending companies – is roughly proportional to the level of mortgage business that each type commands nationwide. The survey is based on first-lien prime conventional conforming home purchase mortgages.
The survey data is collected from Monday through Wednesday and the results are released on Thursdays at 10 a.m. ET to the public. Traditionally, the average rates and points (and margin for ARMs) for each product are reported as a national average and separately across the five Freddie Mac regions. However, beginning January 1, 2016, the PMMS will no longer provide results for the 1-year ARM. Additionally, the regional breakouts are no longer provided for the remaining products that they do highlight.
The PMMS results are published and reported on extensively in the media. It is used in several government agency reports, and many other industry-related publications. Many state regulators use the analysis as a benchmark to gauge common rates and fees, and enables them to monitor when lenders are charging outlandish fees or overly excessive rates. For example, the Federal Reserve Board includes the average 30-year rate on its list of Selected Interest Rates (Statistical Release H.15) as the measure of conventional mortgage 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 these important points:
• Fees. On most weekly survey results, the average Interest Rates being quoted require additional fees and Origination Points. On average, the rates are quoted required 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 is most likely what will 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 weeks ago, the survey was broken down by region and the North-East region was always higher than the national average.
• Servicing Value. 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.
• Loan Terms. Most, if not all, releases often omit important requirements or caveats that get the rates to appear very low – like specific FICO score or equity requirements. The loan to value and loan purpose also play a very important and crucial role in the accurate pricing of a loan.
• Eligibility. Not all applicants can qualify for these rates. The rates are tied into specific loan-to-value and credit score benchmarks. An applicant’s debt to income ratio comparison and qualification as well as percentage of downpayment are just a few of the items of qualification utilized in determining loan eligibility.
Ever since the government took over Fannie and Freddie, these weekly announcements by Freddie Mac are increasingly becoming public media campaigns and marketing crusades more than actually a true source of market data, insight and info that can be relied on with confidence.
What’s worse is that many banks are not passing on the full benefit to mortgage bankers or brokers, 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.
That said, at the end of the day — mortgage rates are still close to historically low levels! As a participant of that survey, Approved Funding knows the behind-the-scenes dynamic of how these numbers are procured – and the ‘devil is certainly in the details’ of those numbers. Please contact us for specific scenarios and analysis that can help you make the best and most timely decision about your mortgage loan.
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