Mortgages pause, prepare to resume climb
Mortgage rates took a break this week, but they will soon resume their upward march as lenders face higher mortgage fees that will get passed on to consumers.
30 year fixed rate mortgage – 3 month trend
The benchmark 30-year fixed-rate mortgage was 4.55 percent, the same as last week, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.39 discount and origination points. One year ago, that rate stood at 3.52 percent. Four weeks ago, it was 4.48 percent.
The benchmark 15-year fixed-rate mortgage fell to 3.60 percent from 3.62 percent last week, and the benchmark 5/1 adjustable-rate mortgage rose to 3.34 percent from 3.33 percent. The benchmark 30-year fixed-rate jumbo fell to 4.55 percent from 4.57 percent.
A stronger-than-expected employment report, released on Friday, could have pushed rates higher this week. But most of the damage was done by an earlier report on private-sector hiring. Rates jumped immediately after payroll processor ADP said Wednesday that companies added 215,000 jobs in November. Friday's report showed that private and government jobs grew by 203,000.
"Mortgage rates had the November jobs report cooked in," says Dan Green, a loan officer for Waterstone Mortgage in Cincinnati.
Higher guarantee fees lead to higher rates
Borrowers may have dodged the bullet this week, but they should brace for a rate hike in coming weeks, especially those planning to get conventional mortgages (loans that aren't jumbos or backed by the Federal Housing Administration or Veterans Affairs).
The Federal Housing Finance Agency says Fannie Mae and Freddie Mac will increase the fee they charge lenders to guarantee mortgage loans.
Consumers don't directly pay for Fannie and Freddie's guarantee fees, known as "g-fees." Lenders pay g-fees and pass the costs on to borrowers. It's like when cheese and tomatoes get more expensive, so the pizza place raises prices to make up for the hike, explains Derek Egeberg, a branch manager for Academy Mortgage in Yuma, Ariz.
"Anytime they raise the fees -- whether you are a small or a large bank -- you can't absorb the cost," Egeberg says. "You have to pass it on to the consumer. Otherwise the loan becomes unprofitable."
The 10-basis-point fee hike will translate into an eighth to a quarter of a percentage point in rate increase for mortgage borrowers getting Fannie and Freddie loans, says Rob Nunziata, president of FBC Mortgage in Orlando, Fla.
The increase goes into effect in March, but borrowers should expect higher rates as early as a couple of weeks from now.
"Lenders are going to start pricing the g-fee increase before it takes effect," Nunziata says. "Within the next couple of weeks you are going to start to see the hike get baked into the rates."
Borrowers in New York, New Jersey, Connecticut and Florida will be hit the hardest by the fee increase, Green says.
That's because the FHFA is eliminating in all but those four states another fee that it started charging lenders after the financial crisis. Since 2008, lenders pay a one-time adverse market fee of 0.25 percent of the loan amount on all loans sold to Fannie and Freddie. The adverse market fee will remain in place only in the four states now.
Don't forget the Fed
Adding to the threat of higher rates is the next Federal Reserve meeting, next Tuesday and Wednesday. Rates could spike quickly if the Fed announces a date for when it will begin to reduce the pace of the bond-purchasing stimulus program.
Many economists and market observers say it's unlikely the Fed will announce the tapering this year, but it remains a possibility.
"The start of a taper is possible," Green says. "The prudent, defensive move is to lock a rate before the Fed adjourns."