Oklahoma Home Mortgage Rates | Mortgage Tulsa Oklahoma | Mortgage Loans Oklahoma

How lenders set rates 

Generally speaking, the most commonly asked question in the mortgage industry is this, “How do lenders set mortgage rates?” And the answer is simple, “Lenders do no set mortgage rates?”

Well, if lenders don’t set the rates, who does?

And here is how it works. Your mortgage lender will determine whether they will approve you or not for a loan and on what terms your loan will be approved (based on your credit score, income, assets etc…), however the actual mortgage rates and interest rates are determined based on a variety of market factors on the secondary market (a fun place where mortgages are bought and sold).

As disturbing as this may sound, the Federal government setup 2 incredibly infamous organizations (as of 2008) known as Fannie Mae and Freddie Mac. Fannie and Freddie were created decades ago to help stimulate the lending process through increased government efficiency. Fannie and Freddie and a few other major Wall Street Mortgage Investment companies would then actually go around buying up the loans that your lender has made to people like you and me. These mortgages and loans were then bundled together into this exciting things called “tranches.” These tranches were then either held as part of an investment portfolio orthey were sold to Wall Street, mutual funds, and other financial investment organizations where they were then traded just like Treasury bonds and securities.

• Government set up Freddie Mac and Fannie Mae to increase the efficiency of the private mortgage industry (government and efficiency just don’t mix well together)
• Freddie and Fannie then bought these mortgages, bundled them together and sold them to Wall Street where they were bought up my mutual funds and various other investment groups. Thus when foreclosures began happening, Mutual Funds nose-dived. When scared investors began pulling their cash out of the Mutual Funds the other companies’ stock held by these Mutual Funds nose-dived as well resulting in “real” people get layed off from “real” jobs as their companies became cash strapped without their investor’s capital.

Thus  interest rates go up and down based on those exciting fluctuations of the secondary market, not based on the lender’s emotions or feelings on any given particular day. Essentially when the economy is going down rates will drop to get people like you and me motivated to purchase homes and refinance our exisiting homes. When the economy is bullish and is moving upward, the rates raise to maximize their investor’s profitability during an economic upswing.

Basically patterns for interest rates almost always follow the economic cycles that we have all grown accustomed to. When the market doing well, rates go up. When the market is doing poorly rates go down. Thus, the best time to get the best rate is when the market is down (which just happens to coincide with the best time to buy the most property for the least amount of money).