Today brought another wave of “NEW RECORD LOW” rate headlines, yet rates are up this week, so lender quotes may be higher than the headlines. Confusing, right?
These rate headlines each week are largely derived from a Freddie Mac survey published every Thursday. But new data players like Zillow are emerging, adding even more confusion for rate shoppers.
So let’s clear it up and make sure rate shoppers know how to navigate. Below I explain the Freddie and Zillow weekly rate reports one at a time, with help from Zillow Mortgage head Erin Lantz.
FREDDIE MAC RATE SURVEY FINE PRINT
Here’s how Freddie Mac rates are derived so you can determine if you AND your property qualify for the rates you’re reading about in the media. Mainstream media stories lead with rates and mostly exclude these details. Here’s my rundown:
- The Freddie Mac Primary Mortgage Market Survey (PMMS) is released here on Thursdays.
- PMMS rates are national averages based on survey responses from 125 lenders—Freddie Mac surveys 25 lenders in each of their 5 regions.
- PMMS rates are for the week leading up to (and not including) Thursday. Mortgage rates are tied to mortgage bond trading, and as such, rates change all day everyday. So Thursday PMMS rates are long expired before they ever hit the media. Maybe the market has held by the time the press covers it, maybe not. The only way to know is with a quote from your lender based specifically on you AND your property.
- PMMS rates are on Conforming loans up to $417,000. Super-Conforming loans up to $625,500 and Jumbo loans above $625,500 are excluded. Rates are higher for these loan tiers above $417,000.
- PMMS rates are on Conventional loans, and exclude FHA loans.
- PMMS rates are for single family homes, and exclude other property types like condos and duplexes. Rates are higher for these other property types.
- PMMS rates are for borrowers with at least 20% equity in their homes.
- PMMS rates are for owner-occupied homes only. Rates are higher for rental properties and (some) second homes.
- PMMS rates always include “points” to buy down the rates. Points are fees calculated as a percentage of loan amount, and these fees are on top of a normal set of closing costs. Many press reports leave out this critical fact–—it’s critical because rates with zero points are higher. And also rates are higher for zero-cost loans.
Below are tables showing Freddie Mac PMMS rates and points (on single family home loans to $417,000) for the past 5 weeks. To understand points, look at the October 4 points for the 30yr fixed: 0.6% x loan amount = fees on top of normal closing costs. So if you had a $400,000 loan at 0.6% points, you’d pay $2400 in points plus normal closing costs which are $2500-$4000 depending on your region.
ZILLOW MORTGAGE RATE TICKER FINE PRINT
Zillow is also rapidly gaining mainstream media exposure for a weekly rate report they release each Tuesday. The result is a lot more “RECORD RATE!” type headlines without a lot of detail.
I talked to Zillow’s head of mortgage operations Erin Lantz to get some clarity on their report. Here’s my rundown:
- The Zillow Mortgage Marketplace (ZMM) Rate Ticker is released here on Tuesdays.
- It isn’t based on a survey like the Freddie Mac PMMS. It’s drawn from thousands of rates lenders are quoting on Zillow at 1:00 p.m. ET each Tuesday. It’s released one hour later at 2:00 p.m. ET.
- The ZMM Rate Ticker reports 30-year fixed rates.
- ZMM rates are for home purchase loans only (as opposed to refinances) with at least 20% down.
- ZMM rates are for single family homes, and exclude other property types like condos and duplexes. Rates are higher for these other property types.
- ZMM rates are for loan amounts from $200,000 to $417,000. Super-Conforming loans up to $625,500 and Jumbo loans above $625,500 are excluded. Rates are higher for these loan tiers above $417,000.
- ZMM rates include FHA loans. This can skew their rates lower because FHA rates are lower than non-FHA rates.
- ZMM rates are for owner-occupied homes only. Rates are higher for rental properties and (some) second homes.
- ZMM rates use a borrower credit score of at least 740. The median U.S. credit score is 711, and rates are higher if your credit score is below 740.
Below is a rate table (on single family home loans to $417k) from Tuesday’s ZMM Rate report.
You can see that these rates are even lower than the Freddie Mac PMMS survey.
Her response: “Totally not the case. We verify the validity of the rates lenders submit. It’s an important distinction in the online rate space.”
The three main ways Zillow verifies validity of rates is:
(1) Quote flagging program. Anyone using Zillow can flag the quoted rate, and the lender must provide documentation about the validity of the rate to Zillow customer service team. If a rate is invalid, Zillow will take action from warning the lender on up to temporary or permanent suspension of that lender from quoting.
(2) Mystery shopping program. Zillow uses its customer service team to periodically shop the lenders on the Zillow site, call the lender, and obtain actual direct lender-to-consumer (rather than via Zillow system) quotes. They then compare to the Zillow site. Disciplinary action for lowball quotes is similar to above.
(3) Ratings program. Any borrower who finds a lender in Zillow Mortgage Marketplace can write a review on that lender and it’ll be published in that lender’s profile. This is 1-5 star review plus commentary. The way lenders get contacts is low rates and high ratings.
Lantz said there are “hundreds” of Zillow-vetted lenders from large national banks down to small broker shops quoting rates on on her system. When pressed, Lantz said it’s mid-hundreds.
As for Zillow’s endgame in mortgages, it’s to complement their massive home listing database to make a one-stop shop for homebuyers.
Lantz said Zillow’s Tuesday rate report was created to be a “comparable but better” alternative to the Freddie Mac survey. Better, she says, because it’s more realtime.
When asked how Zillow’s mortgage operation is different than other online entities, she said they’re more purchase rather than refinance focused.
“We see that consumers come to Zillow as their primary shopping site with the broadest set of home listing data all in one place. They can use others, but we have the most for sale (and for sale by owner, for rent, etc). The Mortgage Marketplace is intended to enhance that.”
I also asked Lantz if her compensation was in any way tied to loan volume generated. It’s not. She said she’s paid based on “making Zillow the best place for consumers to shop for mortgages.”
FINAL THOUGHTS FOR RATE SHOPPERS
Rates are derived based on your profile AND your property’s profile. End of story. To be quoted properly, your rate does have to come from a lender. And it’ll be subject to change if the lender doesn’t screen you and your property properly before quoting you. Screening you means reviewing all your documentation (paystubs, full tax returns, all asset statements, credit report, and more).
Rates for conforming loans change throughout each day based on trading in mortgage bonds (MBS), not the 10-year Treasury note like so many think. The best place to watch mortgage bonds is this MortgageNewsDaily page. This is the closest thing consumers are going to get to understand how rate markets are changing throughout each day. Rates drop when MBS prices rise and vice versa.
This piece is the first in a series on how technology is rapidly changing how consumers shop for rates. Next up is more on what some other emerging players are up to.
Disclosure: I don’t quote rates on Zillow.