Why is the Thirty-Year Fixed-Rate Mortgage Still so Expensive?

I know.  I know.  Everyone says that the thirty year, fixed rate mortgage is sitting at historic lows, and I agree that is true.  Heck I re-financed last year just like many of you.  I just think that based on other historical norms, the rate should be lower.  According to a recently posted discussion over on the New York Fed website, there are a number of factors that could be at play keeping the thirty year rate higher than it should be .

It turns out I’m part of the problem.  Maybe you are too.  The authors argue that all of us that are refinancing to advantage of the historic loans are creating such a demand for mortgages that lenders have pricing power.  This means they can basically collude and set prices that generate higher profits than one would expect in the market.

In normal market conditions one would expect this higher demand by an increasing number of sellers entering the market to take advantage of the higher profit opportunities.  However the authors suggest that a number of factors may get in the way of that here:

“… these channels may be impaired today because of the decline in third-party originations by mortgage brokers or correspondent lenders, uncertainty about how long the high origination volumes will last, lack of clarity about future regulations, more general fear of future liability risk, or difficulty hiring qualified underwriters. As a result, profit levels and the primary-secondary spread could stay higher than normal.”

Thus, my best chance at being able to re-financing again at 3% or less is to get all of you to stop re-financing!  Tell your friends.  We need to discourage the re-financing volume and rates just might fall!

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