Blogging About Loans: Why rates are not going to get to 4%!

An office of elite mortgage lending professionals with a common interest and goal focused on providing customer service that exceeds expectation. Thereby building our business from repeat and referral opportunities. Ruth Vogt. LMB 100023827. NMLS 257576. Regulated by the Division of Real Estate. Fairway Independent Mortgage is an Equal Housing Opportunity.

Why rates are not going to get to 4%!

I hate long posts, especially when it's about something like interest rates, but hang with me here because I think this is going to make sense, in simple terms (or as simple as you have heard on this subject).

First you must understand what goes into an interest rate. Let's say a borrower is paying 5% interest. Where does the 5% go?

Approximately 1% of that amount is split between 1) the servicer, 2)FNMA/Freddie Mac, and 3) Wall Street.

1) Servicer earns a portion of the income for maintaining an accounting for each payment made on the loan. Tax and Insurance escrows are managed by the servicer, and a record of principal and/or interest is maintained.

2) FNMA/Freddie are compensated for setting and asssuring minimum borrower and property standards for loans to acceptable for sale as Mortgage Backed Securities (referred to as MBS).

3) And Wall Street earns a portion of the first one percent for facilitating the sale of the MBS. To who? You guessed US! You and me: the public. And at what rate of return? Whatever is left over, or in our example, it would be a 4% return, what is called the "coupon rate".

Thus, to have a situation where interest rates are 4%, would mean we need investors that are willing to accept a THREE percent rate of return. Likely? NOT. Not even with the fed helping!

Speaking of the fed, let's look at what the coupon rates that have been purchased with the 1.25 TRILLION dollars that the fed was authorized to spend: (remember, these are the COUPON rates, not the interest rates! Interest rates would be approx 1% higher)

$42 million was at 3.5%

$151 BILLION at 4%

$268 BILLION at 4.5%

$331 BILLION at 5%

$215 BILLION at 5.5%

$49 BILLION at 6%

$21 BILLION at 6.5%

If you have been keeping a running total, that means the fed has spent just over $1.053 trillion of the $1.25 trillion authorized. Initially is was intended the entire $1.25 trillion would be used in 2009. However, in an attempt to "wean" ourselves off of the injection of the fed's contribution, the remaining $197 billion will be distributed over the first quarter in 2010.

So, what then? What will happen to the rates after the first quarter of 2010? Well.... what were rates PRIOR to fed's participation? 6% to 6.5%.

And will it happen overnight? Probably not.

They'll bounce up and down, just as they always do. But as the fed backs off, the floor / ceiling will go higher. Think of it as a yo-yo.

The yo-yo goes up and down, up and down. Now get on the elevator with that yo-yo still going up and down, up and down. See how the lows get higher, and the highs get even higher?


hmmm... still think 5% interest is too high?

This is my interpretation of a information provided at our office by Barry Habib.

Opinions expressed here are the sole responsibility of the author, and do not necessarily reflect the view of Fairway Independent Mortgage.

Ruth Vogt Colorado Mortgage Lender Ruth Vogt, Sales Manager

 #LMB100023827, NMLSR# 257576

 Equal Housing Opportunity. 

 Regulated by the Division of Real Estate.  303-881-7849.


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Comment balloon 9 commentsRuth Vogt • December 23 2009 04:16PM


Hi Ruth! You just gave your customers, readers and myself a great education about rates! :)

Posted by Jackie Connelly-Fornuff, "Moving at The Speed of YOU!" (Douglas Elliman Real Estate in Babylon NY) almost 9 years ago

I think you are spot on.  What type of investor is looking at a 3% return and being okay with it.  Hopefully when rates do creep back up that they stay under 7%.  I think anything over that will really slow things down.  I was happy with 6 3/8's when I bought my house.  5% is just awesome no matter how you look at it. 

Posted by David Monsour, ABR - (Keller Williams Keystone Realty) almost 9 years ago

Thanks for reading this post. If you are with the KW Clients Choice office, don't forget to call or email Rosalinda for your Fifty Keller Bucks!

Posted by Ruth Vogt almost 9 years ago

Thanks Ruth.  This is a great explaination for our buyers.


Posted by Nancy Murray, Your NICE Real Estate Agent in Colorado Springs (Keller Williams Clients Choice Realty, Colorado Springs, CO) almost 9 years ago

Jackie, thanks for the reblog! A great compliment, and appreciated.

David, totally agree with you! on ALL points.

Nancy, I'm glad you found my post "buyer friendly".  ;)   It's not always easy to talk language they understand.

Posted by Ruth Vogt, 719-592-0855 Apply 24/7 (Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate.) almost 9 years ago

HI Ruth - We are undoubtly experiencing an unprecedented time in history where interest rates have been so low for so long.  It can't last forever, as the government needs to attract foreign investors to invest in our debt.  In order to do so, interest rates must rise.  Taking advantage-  right now -  is an opportunity of a lifetime...It's a matter of time when folks will, in retrospect, say "why didn't I take advantage of this opportunity?" 
Great article!  Love your posts.  Regards - Esther Harnsberger, SFR, MCP  - Keller Williams - Littleton, CO

Posted by Esther Harnsberger, Your Denver Home Source 303.902.1435 (Keller Williams Realty Success, Littleton, CO) almost 9 years ago

thanks, Esther, for stopping by. Glad you are enjoying my posts~

Posted by Ruth Vogt, 719-592-0855 Apply 24/7 (Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate.) almost 9 years ago

Ruth, this is a good explanation of a tricky subject. Unfortuantely, it wounds like the ending will not be a good one for homjebuyers.

Posted by Guy Thomas (WR Starkey Mortgage) almost 9 years ago

I fear you're right, Guy! And especially now that inventory is going the wrong way for buyers, too!

Posted by Ruth Vogt, 719-592-0855 Apply 24/7 (Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate.) almost 9 years ago