Thursday, November 27, 2008

Fed helps drop mortgage rates; a sudden refinancing boom?

Real estate agents and now loan officers must feel whipsawed. After months of slow or little work, suddenly some of them are at the office until after midnight, as suddenly the Federal Reserve announced Tuesday it would buy some mortgage-related securities, dropping interest rates.

The Federal Reserve press release from early Nov. 25 is here.

The Washington Post has a major front page story on the sudden mortgage boomlet Thanksgiving morning by Dina ElBoghdady, “As Loan Rates Fall, Borrowers Seek ‘Taste of the Bailout Pie’”, link here. However, some borrowers still will not have enough equity given the drop in appraisals (at least until Obama’s team figures out what to do about this) and many have had their credit limits drop, lowering their credit scores even if they have good bills-paying records.

The whole subject of credit score seems a bit arbitrary to me, and ought to get a much closer look, as to what really goes into it, and as to how accurately the scores really predict consumer “risk”. There are plenty of new variable on the scene to think about, and credit scoring could get further out of control. I worked on this product, at least tangentially, in the 1980s when I worked for Chilton Corporation in Dallas (now Experian).

I once refinance a condo in Dallas, in 1986, going from a 12.5% VA to a 10.5% FHA. The closing just consisted of signing papers in a lawyer's office.

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