September 19, 2021

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Mortgage News

Watch Out For Fake Mortgage Rate News

Despite your reflections on the term “fake news”, we need to talk about it in the context of Mortgage rates. It is very relevant even when deception is far from intent. Thursday is a big day for the mortgage rate news as Freddie Mac’s weekly mortgage rate survey comes out. Why does that matter? Because while each lender is good at keeping track of their own interest rates over time, Freddie is one of the few games in town when it comes to capturing a wide range of average interest rates among multiple lenders. It doesn’t hurt that their numbers go back to the 70s and that they are one of the two gigantic housing agencies that have the vast majority of all mortgages in the US in some way over their desks.

Over time, reporters have found that when Freddie’s report comes out, instead of getting multiple interest rates from multiple lenders every day, it’s easy to just cover the mortgage interest once a week. This model has worked fine for almost everyone almost every week, but there are times when it breaks down miserably. This is one of those times.

It’s about the LAG inherent in Freddie’s methodology. Surveys are sent on Mondays and accepted by Wednesday. But most who will answer end up doing so correctly when they get the survey. Therefore, the interest rate index published on a Thursday is usually only an interest rate report from Monday to Monday. Hence, it can be very inaccurate if the rest of the week is volatile. In our experience (where actual rates are obtained from multiple lenders multiple times a day), changes in Freddie’s survey rates also tend to lag in terms of magnitude.

For example, their 30 year rate “this week” rose from 3.05 to 3.09, which is only 0.29% since the week ended February 14, 2021 (when things got really intense). Over the same period, we saw an increase of 0.54%. The following table tells the story. Freddie in blue, we in orange.

3.40% is an average that includes purchases and refis. This makes up part of the difference as the purchases are currently at lower rates. Nevertheless, the purchase rates are now slightly on average at 3.25%. Many lenders are already up to 3.375%. Lower credit scores, lower down payments, investment property, and other adjustments only make matters worse.

So what happened

In short, Covid is on the run. There’s a lot that goes with it, but if you could just cite one evolution as the driving rate for extremely low levels in 2020 and higher pace in 2021, then this is the shift in momentum in the pandemic. We discuss these other factors often enough to save a more detailed breakdown for tomorrow and focus for today on discrepancies between the rate realities and some of the news you may come across.