HOW-TO: Election Hedge your Mortgage Refinance?!

[Chris Mason]

Hello! Not a lot of posts from me of late, I have of course been buried. I wanted to pop my head up for a sec, just to leave a quick note on something. 

For those that have not already refinanced and gotten their #covidrate, we're now at an interesting time: Starting a refinance right now will automatically be an election hedge. A few caveats:

- This will not work for home buyers, only refinancers.

- This will not work nearly as well with a direct lender or mortgage banker, mortgage brokers have a far greater ability to be promiscuous and disloyal to lenders than someone employed directly by a specific single lender or bank, obviously.

Front page news stories often cause rather large inter-day interest rate swings. The election results certainly qualify as that. (EDIT: oh, and evidently the first family has COVID-19? Let's see how rates do tomorrow! Should be *either* a really good, or really *bad* day to lock, one of the two extremes!)

For this thread, please do NOT discuss who you think will win, why, or claim to have a crystal ball telling you what impact the election will have on rates, the day after the presidential victor is announced. I will summarize the three possibilities below:

- Rates could go up the day after the election, maybe by a lot.

- Rates could go down the day after the election, maybe by a lot.

- Rates could just kind of shrug and not really do anything.

There you go, there are the three possibilities. No crystal ball commentary needed, thanks!

If you're working with an independent mortgage broker that works with multiple lenders and banks, and you lock long enough that it's good for a week or so after the election, here's how this could pan out for you:

- Rates go up. You call your mortgage broker and say "Jeez, I'm super glad we locked when we did, rates are TRASH right now all of a sudden. Let's close this puppy out with that pre-election rate lock! Whoop whoop, I win!!!"

- Rates go down. You call your mortgage broker and say "Hey! I know it's extra work for you, which I *totally* appreciate, but I'd like you to start from scratch with a new lender, these rates are EVEN LOWER than before, by a LOT, and I want to take advantage of that. I understand that this will require a new appraisal and accompanying fee, and I'm not sweating that, I want DAT RATE! Whoop whoop, I win!!!"

The price of that hedge, as noted, is that you will possibly be on the hook for a second appraisal fee, and of course your loan originator can't guarantee that this next appraisal will come in as high as the last one. And, naturally, there will be more paperwork, since you're starting from scratch in the eyes of that new lender (who does not care about your 40 day old pay-stubs, etc, they want the most recent ones). The hypothetical rate drop would have to be compelling enough to make it worth it for you. And it may not be, who knows, but hey you couldn't have known at the time either, and you protected yourself by getting the ball rolling back then (ie, right now), no biggie.

There you go!

And, since I have your attention, and I know what the BP community always wants: cash out refinances are back to being broadly available, more or less, inclusive of rental properties. :)

ANOTHER NOTE: In about a week, the last of the big wholesale lenders will be implementing the adverse market refinance fee. Everyone else has already implemented it, so the "avoid that" ship has almost entirely already sailed. 

On my end, if curious, I'm already counter-hedging. If two lenders are priced the same for a given type of scenario, but I have one I like better between the two, normally I'd send all the files to the lender I like best and call it a day. Right now, for scenarios like that, I'm tossing a coin. That way, if they *all* have to be re-originated, at least only half are with my less-fav lender, and half are still with the lender I like, rather than 100% of them being with the one I'm not a huge fan of.

Good luck!

[Account Closed]

Originally posted by @Chris Mason:

Hello! Not a lot of posts from me of late, I have of course been buried. I wanted to leave a quick note on something. 

For those that have not already refinanced and gotten their #covidrate, we're now at an interesting time: Starting a refinance right now will automatically be an election hedge. A few caveats:

- This will not work for home buyers, only refinancers.

- This will not work nearly as well with a direct lender or mortgage banker, mortgage brokers have a far greater ability to be promiscuous and disloyal to lenders than someone employed directly by a specific single lender or bank, obviously.

Front page news stories often cause rather large inter-day interest rate swings. The election results certainly qualify as that. 

For this thread, please do NOT discuss who you think will win, why, or claim to have a crystal ball telling you what impact the election will have on rates, the day after the presidential victor is announced. I will summarize the three possibilities below:

- Rates could go up the day after the election, maybe by a lot.

- Rates could go down the day after the election, maybe by a lot.

- Rates could just kind of shrug and not really do anything.

There you go, there are the three possibilities. No crystal ball commentary needed, thanks!

If you're working with an independent mortgage broker that works with multiple lenders and banks, and you lock long enough that it's good for a week or so after the election, here's how this could pan out for you:

- Rates go up. You call your mortgage broker and say "Jeez, I'm super glad we locked when we did, rates are TRASH right now all of a sudden. Let's close this puppy out with that pre-election rate lock! Whoop whoop, I win!!!"

- Rates go down. You call your mortgage broker and say "Hey! I know it's extra work for you, which I *totally* appreciate, but I'd like you to start from scratch with a new lender, these rates are EVEN LOWER than before, by a LOT, and I want to take advantage of that. I understand that this will require a new appraisal and accompanying fee, and I'm not sweating that, I want DAT RATE! Whoop whoop, I win!!!"

The price of that hedge, as noted, is that you will possibly be on the hook for a second appraisal fee, and of course we can't guarantee that this next appraisal will come in as high as the last one. And, naturally, there will be more paperwork, since you're starting from scratch in the eyes of that new lender. The hypothetical rate drop would have to be compelling enough to make it worth it for you. 

There you go!

And, since I have your attention, and I know what the BP community always wants: cash out refinances are back to being broadly available, more or less. :)

ANOTHER NOTE: In about a week, the last of the big wholesale lenders will be implementing the adverse market refinance fee. Everyone else has already implimented it.

On my end, if curious, I'm already counter-hedging. If two lenders are priced the same for a given type of scenario, but I have one I like better between the two, normally I'd send all the files to the lender I like best and call it a day. Right now, for scenarios like that, I'm tossing a coin. That way, if they *all* have to be re-originated, at least only half are with my less-fav lender, and half are still with the lender I like, rather than 100% of them being with the one I'm not a huge fan of.

Good luck!

Nice post. I can't wrap my head around 2.89% rates ;-) When I started in real estate, "good" rates were 18% and finally dropped to 8% which we thought was great and the "bail you out of foreclosure rates" were 14%. We were told we'd "never see 6% rates again".  I know, I know, I'm showing my age.

But, to think rates could drop "by a lot" from where they are now is incomprehensible in a sane market. You never said it was a sane market, don't get me wrong, but I'm just sayin'. It staggers the imagination.

So, even if rates double, I'm buying like crazy.