I recently called up Jeff Bezos last week and that he sell me Amazon stock for $6 per share because that was the price in October of 2001, when I wanted to buy 10,000 shares … but didn’t.
I then explained to him that my $60,000 investment at that time would now be worth over $31 million today at the current share price of $3,160ish, so he needed to sell me stock at $6 per share today.
Mr. Bezos was not impressed, as he immediately got angry for some reason and told me to pound sand (I could hear the din of dance music and sports cars revving in the background though, so maybe he was just busy? 😊).
2,500 Pre-Approved Borrowers – At Yesterday’s Rates
I tell the above story, which may or may not have taken place, to illustrate a point.
We have over 2,500 pre-approved borrowers in our pipeline.
When we pre-approve borrowers, we provide numerous payment and closing cost scenarios based on the interest rate environment at the time of pre-approval.
We also often provide updated payment scenarios along the way.
The problem is that many (if not most) of those payment estimates were based on rates that were as much as 1/2 percent lower than today’s rates.
Many borrowers fortunately understand that interest rates are volatile and that there is no way any lender can guarantee a specific rate before a borrower identifies a property and goes into contract.
BUT – many borrowers unfortunately do not seem to understand that rates are not only volatile but can move as much as 1/8 percent in a single day!
Even more unfortunate is the fact that many of those borrowers literally get mad at us for “allowing rates to rise” or something? 😊 And – they then demand that we honor last week’s, or last month’s rate estimate – even if we have to lose money to do so.
No lender of course can do this because no lender can afford to lose that much money.
Hence – I am writing this blog. NOTE: I stole the subject line from MBS Highway, as they made the exact same point in their post today (credit where credit is due).
So – here are a few reminders for our agent partners to share with their clients:
Rates Change. We have been spoiled by some relatively stable rate environments over the last few years, but rates can and do change often – sometimes over a 1/8% in a single day. In the 1990s, I saw rates move as much as 3/8% in a single day on occasion.
Lenders Can’t Control Rates Or Offer Rates Below Market. Lenders obviously cannot control interest rates nor can they offer rates below market, as “a favor” like some borrowers believe, because they would lose tens of thousands of dollars for that loan when they sell it on the secondary market – like ALL mortgage banks have to do.
Effect On Payment Is Minimal.I blogged about this last week, but a full 1/2% increase in rates might result in a monthly payment increase of $30 per $100,000 borrowed – at most. So, a $500,000 loan will see a payment bump of $150 at most – if rates climb 1/2%.
Respond Quickly To Rate Quotes. When rates are as volatile as they are right now, borrowers need to remember to respond to rate quotes as quickly as humanly possible (within an hour) if they want to preserve that rate. This is once again because rates can shoot up at a moment’s notice in response to all sorts of economic and fiscal news.
Can Refi If Rates Fall. And finally, borrowers should always be reminded that they can just refinance into a lower rate (at “no cost” in most cases) if and when rates fall again.
