12/09/2022

Today’s Par Rate* Charge (1st rate below 1% Charge) Yesterday’s Par Rate*
6.50% | 6.658% 0.779% 6.50% | 6.576%
*Rate Scenario Details: Purchase, 30 Year Fixed, Conventional, $500,000 Purchase, $400,000 Loan, 80% LTV, 41% DTI, Income=$7,500, Primary Residence, Single Family, 84045 Zip Code, FICO=780, Escrows=Yes, Fees Out, Expiration=30 days.
Daily Rate Sheet Compare Comparison Rate* Difference Today Yesterday
Higher 7.000% 0.373 .518 0.145
Higher MBS Price Current Day
8:18 AM MST
MBS Price
-8/32
10 Year Treasury
3.73%
Higher MBS Price Yesterday Close MBS Price
-7/32
10 Year Treasury
3.68%
Rate Influence Report Name Actual Expected Prior
Higher Consumer Confidence 100.2 100.0 102.5
Legend: Yellow highlight = Higher Interest Rates. Green Highlight = Lower Interest Rates.

Mortgage News & Comments

2023 conforming loan limits are scheduled to be announced today.

(HousingWire by Connie Kim). Despite a growing “lock-in effect,” sellers are becoming flexible with concessions to help buyers fund monthly mortgage payments. It’s a terrible time for homebuyers. Mortgage rates for a 30-year fixed-rate loan are hovering around 7% levels and still-high home prices are slashing purchasing power. What helped Erica Davis, a loan originator at Guild Mortgage, in the current high-rate environment is a seller-funded temporary 2-1 rate buydown. By taking advantage of the 2-1 temporary rate buydown, Davis was able to lower her 7.25% mortgage rate by 2% in the first year and by 1.5% in the second year.

Direct Take

I know that buydowns are all the rage right now. This will be a temporary solution. This was created as a way for builders to lower their selling price, under the guise (misleading) that they could still sell lower interest rates. And since the sales pitch worked with many borrowers, everyone jumped on the bandwagon.
However… everyone needs to realize the truth about a buydown:

  1. The interest rate is not lower!
  2. The interest rate is still the current market rate, but the borrower reduces their payment as though the interest rate was lowered – even though it wasn’t.
  3. The higher payment is still the same. But since the borrower will be paying less per month, the “shortfall” is made up by money placed in an escrow / buydown account.
  4. What this means is that somebody (normally a bank) holds the borrower’s money for 2 to 3 years. They pay no interest for holding the borrower’s money.

In Summary
A buydown is where a borrower prepays up front – on the day of funding – a portion of their monthly payments (often for 3 years). They fund this normally by the seller paying for it. But what should always be asked is what else could the seller funded costs be paying? Some other seller funded options might be:

  1. An actual lower rate.
  2. Lower purchase price.
  3. A bank account where the buyer earns interest and can use it however and whenever they want to use their money – including paying their mortgage payment with it.

As you might be able to tell, I am no fan of doing a buydown. But I realize we have to provide the buydown product, because it is often too difficult to overcome / explain to borrowers that they really aren’t getting a lower rate. Especially when they are excited about their new home and are thinking (incorrectly) that they can still get that lower rate.