October 21, 2011

Hey CNNMoney: Please Learn The Mortgage Business

October 21, 2011

Hey CNNMoney: Please Learn The Mortgage Business

Two days ago, CNNMoney ran this headline: The 4% Mortgage: Good Luck Getting One. I linked to it on my site and it was one of the most-clicked links of the week. So CNN gets credit for a good headline, but the story was full of misinformation.

I have to guess by my site’s traffic that the story was also a big hit for them, so below I explain and correct two of the article’s most misleading comments.

First, it says that despite Freddie Mac rates hitting 3.94% early-October, LendingTree told the writer that rates were more like 4.32% “at the same time”. There are two things wrong with this:

(1) The reason rates were higher “at the same time” is because of how Freddie Mac reports the rates that mainstream media parrots. Freddie Mac reported 3.94% rates on October 6. Those rates come from a weekly survey of lenders they do in the 3-4 business days leading up to the reporting day. The true low, when borrowers could lock 3.75% at zero points, came for a few hours in the trading day October 3. Then mortgage bonds sold sharply October 4, 5, 6, 7, 11, and 12. And rates rise when mortgage bonds sell. So by the time Freddie Mac reported that Thursday (and every Thursday), those rates are long expired.

(2) CNNMoney makes no mention of loan amount or points. The weekly Freddie Mac survey is for single family home loans to $417,000, and always includes points—which are fees paid to buy a rate down, and are added to a full set of closing costs. So when CNNMoney quotes LendingTree saying about a third of their borrowers got 4.5% to 5% rates the week of October 6, that could mean anything. Condo rates (when borrower has less than 25% equity) are higher. Loans above $417k are higher, and loans above $625k are even higher. And it’s pure factual error to say “the LendingTree numbers reflect actual loans that borrowers got” because it makes no mention of average points paid by LendingTree borrowers. Freddie Mac points paid for the reporting period referenced were 0.8%, and that’s also absent from this story.

Second, the story says that the rush of refinance applicants can drive up rates. It quotes a jumbo lender (a lender who specializes in loans typically above $625,500) saying that lenders will hike rates to control volume during refi booms. This can be true for jumbo lenders since their loan pricing is based a less on mortgage bond trading, and more on bank discretion (since jumbo securitization is still spotty so lenders often keep the loans on their books). But for loans up to $417,000, pricing is very efficient nationwide because Fannie and Freddie provide liquidity for those loans. Even on the off chance a single lender offering higher rates for these loan amounts, most don’t so the consumer can still find the best options.

I see stories like this every week, but this one was particularly bad because of the headline that went with it. But maybe I should take it as a lesson to write more sensational headlines, so at least when consumers read my stories, they’ll get the actual facts.

To Les Christie at CNNMoney, I’ve seen better work from you. Hopefully you were just off this week. But if you’d like to stay up to speed on the mortgage business, I’d be happy to help you out.

To everyone else, below are some good consumer reference links including How To Shop For A Mortgage, a primer on how to get the lowest rates when markets swing wildly each day.
Further Reference:
CNNMoney: 4% Mortgage, Good Luck Getting One
Freddie Mac Weekly Rate Report
How To Read Freddie Mac Rate Reports
How To Shop For A Mortgage