I tell clients that I’m much more comfortable predicting the past than the future. But there’s one financial spot in which you can do both!
Freddie Mac in 1971 began a mortgage-rate survey upon which we all rely for historical reference. No other survey goes back so far, and the media report Freddie’s findings religiously each week.
In the 1970s, to get a fair sample of rates across the U.S., Freddie had to telephone a lot of banks and S&Ls (savings and loans outfits). Freddie still does — 125 banks each week.
Which is nuts! Mortgages became bond-like by 1983, securitized into MBSs (mortgage-backed securities), which sold at the same prices on Wall Street no matter who the seller was, and thus retail rate dispersion among thousands of Main Street lenders collapsed into a narrow channel.
(One of the mortgage market’s best-kept secrets: we all have pretty much the same deal.)
By the 1990s and a gadget called the “internet,” you could teach a teenager to survey rates accurately in five minutes. Shoot, visit Wells, Chase and a home-town mortgage bank or two, and a credit union…you’ve got a statistically valid sample. Voila!
Not Freddie. Got to keep staff busy, I guess.
By the 1990s, rates not only became uniform but we could also see the change in real time with the bond market. Not just every day, but intra-day.
Too many people working phones is Freddie’s problem, but real time — that’s a problem for consumers and Freddie refuses to adapt. Freddie does its phoning Mondays through Wednesdays, and releases the “news” on Thursday.
Depending on the timing of real-time rate changes, Freddie’s survey-lag can produce comical results.
A favorite among lenders: Freddie catches an early-week decline which has reversed by the time it’s “news” on Thursday. It makes customers furious when we offer higher rates than a consumer just saw in Freddie’s “news.”
So, every week comes an opportunity to predict the future, on Wednesday: since we know where rates were Monday-Wednesday, on Wednesday we can tell clients where rates will be tomorrow, when Freddie makes its “discovery.” So cool!
This week is another Freddie classic. Brexit passed last Thursday night. Mortgage rates on Friday stone-dropped to 3.50 percent, and are now a little lower. Nobody knows!
Freddie has been surveying since early this week, but will not publish until Thursday.
Thursday: “We bring you this bulletin from our offices in Jurassic Park. Freddie Mac’s Primary Mortgage Market Survey has discovered a fossil!
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
