The Federal Reserve has lowered interest rates five times this year, and Federal Reserve Chairman Alan Greenspan has indicated he will do everything it takes to get the moribund American economy moving again – including lowering the federal funds rate.

So why aren’t mortgage interest rates continuing to decline? That’s the question on every home buyer’s mind.

“The Fed controls short-term interest rates, which are overnight funds. The (bond) market controls longer duration Treasuries. Mortgages are closely related to the yield on the 10-year Treasury,” he explained.

“Folks who trade the (10-year bonds) and the 30-year bonds are moving well in anticipation of the Fed. In essence, the yield on Treasuries about 9 months ahead” of what Alan Greenspan and the Fed do, he added.

Dan Harris, a mortgage lender and attorney who is the current president of, Inc., based in Valhalla, New York, agrees.

“A 30-year mortgage has an average life of about 7 1/2 years, which is why it tracks more closely to the 10-year bond. The fact that the overnight Federal funds rate was reduced is like saying the interest on your passbook savings account went down but the 10-year CD rate didn’t change,” Harris said.

Short-term loans, like adjustable rate mortgages (ARMs) are more affected by changes in perception about where the economy is going.

“The price on a 1-year adjustable note has gone down because they’re priced toward the short-term market. If people are nervous about the short-term economy, but confident about the long-term economy, then short-term rates rise and long-term rates fall. If people are more nervous about the economy long-term, then short-rates drop but long-term rates rise,” Harris said.

For consumers, getting a mortgage is getting even more complicated than predicting whether the economy is going to slide into a recession or narrowly miss one, Harris said.

Because of the refinance boom of the past few months, lenders, appraisers and title companies are backlogged. Lenders don’t have enough people on staff to meet the demand for mortgages.

“Long-term rates had fallen about 1.5 percent since they hit their high 14 months ago,” Harris said. “They’ve gone up about 30 basis points (.30 percent) since then, so things have slowed a little.”

Until lenders, appraisers and title companies catch up, it’s taking 45 to 60 days or longer to close on a loan. The problem for many consumers is that to get their business, some lenders are quoting a 30-day rate lock.

In general, the shorter the rate lock, the cheaper the price on your loan. If you want a longer rate lock, it will cost you between 1/8 to 1/4 of a percentage point, Harris said.

“What consumers don’t understand is if you get a 30-day rate lock and the loan doesn’t close in 30 days, then you don’t get that rate and the lender will quote you a higher rate,” Harris said. When shopping for a lender, “the consumer has to be comfortable they’re not getting bait and switched. If they’re getting quoted a 30-day rate lock, they have to ask the lender how long it’s taking to get these loans closed.”

“The entire industry has struggled to meet the demand,” Lepre agreed. “We are having lenders take 7 to 10 days for underwriting, 4 to 5 days for documents, and 3 to 4 days for funding.”

“The current refi boom is the worst that I have seen in 9 years. Lenders do not have the staff to meet the demand, and the problem is three-fold. First, many lenders do not believe that that this refi boom will last long and have not geared up. Second, those that want to gear up have not found the people whom they need. And, third, some mortgage banks are running at their credit limits. An additional problem is appraisals. We are now getting quotes of an average of 2 to 3 weeks to get an appraisal done anywhere in California,” Lepre said.

If you add 20 days for lenders to 3 weeks for an appraisal, plus another couple of weeks for the lender to go back and forth with the consumer, it’s difficult to see how any loan can get closed in less than 60 days.

Which is why Harris refuses to quote any rate lock of less than 60 days.

“If someone says they have all their papers ready, with an old title policy, we might talk about a 45 day rate lock if we know we can deliver the loan. But we’re being very careful,” Harris added.

But if the lender promises he can deliver your loan in 30 days and then takes longer through no fault of your own, you should hold the lender to his initial rate lock price, Harris said.

“If it’s their mistake, the lender should honor that mistake,” he said.

Harris and Lepre offer consumers a few tips to make sure the loan process goes as smoothly as possible. Borrowers should make sure to have a good faith estimate in hand before signing any loan application. Understand the interest rate, points and fees, and exactly how long your rate lock is good. Have all your paperwork in hand, ready to go. Finally, stay in touch with your lender, to make sure your loan stays on top of the pile.

May 28, 2001.