Today’s News About Yesterday’s Record Low Mortgage Rates

by John Glynn on September 29, 2011

'Yesterday's papers telling yesterday's news' photo (c) 2010, Tim Green - license: http://creativecommons.org/licenses/by/2.0/A few months back we looked into the accuracy of the Freddie Mac Primary Mortgage Market Survey. The basic bottom line is that you can get a general feel for the trend over a couple weeks or longer, but for up to date mortgage pricing, it’s worthless. Even when accurate, it’s only by coincidence.

Here’s Why Mortgage Rate News Is Usually Wrong

The Primary Mortgage Market Survey comes out every week, on Thursday morning. The sampling of data takes place between Monday and Wednesday of the same week. The number they give is an average of all transactions in the survey, and identifies both levers in the mortgage pricing equation: rate and points.

There are three primary pitfalls for consumers when reading this news – and the weekly survey does get quite a few news mentions; it is undoubtedly the most widely quoted and referenced data on mortgage rate activity in the financial press. Here’s a look at each of the pitfalls:

    1. The average rate is a blend of what rate the loans have been written at during the survey period. It is not the average “zero points” or “par” rate. Some people opt to pay points, others do not. This survey captures what is happening on average, with regard to rate AND points. The headline references the average rate, the fine print includes the points. In the most recent press release, the first paragraph reads as follows:

      “MCLEAN, Va., Sept. 29, 2011 /PRNewswire/ — Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey®  (PMMS®), coming on the heels of the Federal Reserve’s recent announcements. The conventional 30-year fixed averaged an all-time record low at 4.01 percent; likewise the 15-year fixed averaged an all-time record low at 3.28 percent for the week. Of the five regions surveyed in Freddie Mac’s survey, the West region recorded the lowest average rate for the 30-year fixed dipping below 4.00 percent to 3.95 percent.”

      You have to read further, or click through to the website to find out that the average rate also came with an average cost of 0.7 points. That’s an important variable. Most consumers shop for “zero points” or “no cost” mortgages, so the relative obfuscation of the average points paid will mislead the consumer.

    2. The report is not real-time. Sampling takes place between Monday and Wednesday, and results are compiled and released early Thursday. Thursday’s market may in fact be miles away from Monday-Wednesday.

      Last week, on Wednesday, the Federal Reserve announced Operation Twist and sent the bond market into a panic rally. Mortgage rates hit their absolute lowest levels on record the following day (Thursday). The survey for that week picked up some data from Wednesday, which helped, and announced “lower rates”. But it completely missed the point that on that very day the rates were hitting even lower levels.

    3. The report focuses on a narrow borrower profile segment.  To be fair, narrow in this case is common. But it is in no way comprehensive. To be included in the survey, the data must pertain to loans that are:

-borrowing $417,000 and below
-single family residence (no condos, duplexes, etc)
-owner occupied residence

The bottom line is that there’s just no way to know if the headline is a day late or a day early. If you’re looking to refinance a condo, an investment property, or a jumbo loan – or, if rates are generally volatile during this period – or, you’re looking for a no cost refinance, the survey isn’t going to give you a clear answer. It will literally be giving you yesterday’s news. Depending on the direction of the markets, this can mislead you for better or worse. It just depends.

In fairness, it’s a pretty good report when looking at longer term trends. Especially as it highlights the average fee component, and shows if people are leaning into or away from paying points for below par mortgage rates. But if you need a quote specific to your case, there’s no better way than to keep in touch with your lender. Set a target, know what’s coming on the economic calendar, and devise a lock strategy with your lender.

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