The Mostly Real Estate Podcast, with Declan Spring

Navigating the September 17 Fed Rate Cut: A Mortgage Expert Explains - 65# Evelyn Freitas

• Declan Spring

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When the Federal Reserve announces a rate cut, why do mortgage rates sometimes go up instead of down? This puzzling financial paradox sits at the heart of my insightful conversation with mortgage expert Evelyn Freitas of Guaranteed Rate.

Drawing from over two decades of industry experience, Evelyn takes us behind the curtain of how mortgage rates actually work. She reveals the crucial distinction between the Fed's backward-looking policy decisions (made eight times yearly) and the real-time bond market activity that determines your mortgage rate. "The bond market already did it," Evelyn explains, illuminating why rates had already decreased weeks before the September 17th Fed announcement.

We explore the inner workings of the Federal Reserve Board itself—the 19 participants, 12 voters, and the mysterious "dot plot" that forecasts future rate movements. Evelyn breaks down why Chairman Powell's post-meeting press conference often impacts markets more than the rate decision itself, especially as the Fed navigates tensions between its inflation and employment mandates.

For homebuyers navigating today's market, Evelyn shares invaluable strategic advice. She compares temporary rate buydowns with permanent ones, outlines when adjustable-rate mortgages make sense, and explains why locking your rate early provides stability—like "standing on the ground while watching a turbulent plane fly by." With conventional rates currently in the low 6% range and some government-backed loans dipping below 6%, we discuss why crossing that psychological "5-handle" threshold could stimulate market activity.

Whether you're actively house-hunting, considering a refinance, or simply wanting to understand the economic forces shaping today's housing market, this episode delivers clarity on one of real estate's most misunderstood relationships: the dance between Fed decisions and the mortgage rates that impact millions of homeowners.

Evelyn Freitas is a licensed Mortgage Lender NMLS# 247578

Declan Spring is a licensed CA REALTOR® DRE#01398898

Declan:

This is Declan Spring and welcome to the Mostly Real Estate Podcast. A couple of days ago, on September 17th, the Federal Reserve Board met and they announced a rate cut right after their meeting and could be valuable to get a guest on the podcast who could speak directly to exactly how the Federal Reserve Board works, what goes into their decision making and other various aspects of what impacts mortgage rates. So my guest today is Evelyn Freitas, with Guaranteed Rate. I'm so pleased she could join me on the podcast Without further ado. Enjoy my conversation with Evelyn Freitas. So I'm here with Evelyn Freitas and I'm so pleased you came into the podcast studio today, evelyn. Thank you very much.

Evelyn:

Hey, declan, thank you, it's great to be here.

Declan:

Evelyn Freitas is with Guaranteed Rate and she's an old I shouldn't say old friend of mine. She's a friend of mine. We've known each other for a while, right, and Evelyn is just a great mortgage advisor. I've leaned on her heavily for at least a decade to answer questions that myself or clients would have. So I'm very grateful again that you would come by and let's do a little bio first, because sometimes I get so caught up in the conversation I forget. But let's tell everybody when you got into the business and what brought you to this point and all of that kind of thing, because when I met you you weren't with Guaranteed right, you were somewhere else. As is often the case, we often change our seat assignment. You know, that's the way it goes.

Declan:

We're free to move about the cabin. Free to move about the cabin. Yeah, exactly right. So yeah, let's just kind of start with I love your story. By the way, let's go all the way back to Fisherman's Wharf. Sure, Okay.

Evelyn:

Sure, let's go way back. So let's see. So I'm a Bay Area native. I grew up in Fairfield, california. I was raised by my grandparents and I actually grew up in a house that they built themselves. They bought a lot and they built this house themselves in their free time as cannery workers Wow, between 1947, themselves in their free time as cannery workers between 1947 and 1950. Wow, yes, that's so lovely it is. It's a beautiful custom home. It's a block away from what had been my great-grandmother's home Wow. And I was raised there in this house. And my grandparents are of the descent. They're immigrants from Spain and they always attributed their success as immigrants to the fact that they own their own home.

Declan:

Amazing.

Evelyn:

Which I didn't really realize then, but I think that it had a large influence on what made me want to become a mortgage broker. Wow, yeah. So I grew up in Fairfield, I went to Cal Go Bears and so I moved to Berkeley. In Now everybody's going to know how old I am. It's okay, 1980. No, we can tell them, you were a prodigy.

Declan:

A prodigy, yeah, so maybe you were extremely young.

Evelyn:

I see Okay, I think anybody who knows me would probably laugh at that. So anyway, yes. So I attended Cal, got a humanities degree and when I was finishing school I had a college roommate who was starting a business and had a bookkeeper. That was maybe alienating some of the customers and they needed a bookkeeper. Wow, and I was recruited to become a bookkeeper, even though I had zero accounting skills.

Declan:

Yeah.

Evelyn:

I have a history degree.

Declan:

Yeah.

Evelyn:

I like math. I didn't know anything about accounting, so anyway I became a bookkeeper. Right, like math, I didn't know anything about accounting, so anyway I became a bookkeeper and I got really good at it, basically by having my feet kind of held to the fire on a daily basis.

Evelyn:

The seafood industry is a very cash-sensitive business, if you're going to buy a good product, you have to pay up front for it, and if you're going to sell it to really high-end restaurants, you're going to wait for them to pay you for quite a while, and so you have this constant cash crunch going on. And so I was this young person just out of college learning how to collect money from restaurants to pay fishermen for high-end seafood. I was working at Pier 45 doing the books and also doing some deliveries. I got to deliver to all kinds of great restaurants and it was a real on-the-job education. So I think that's when I was working down there at Fisherman's Wharf, pier 45, pier 33. Yeah, that would have been between 1987 and 1998.

Declan:

Right, On and off, yeah, yeah, yeah, it's interesting Because I was down at the wharf myself, right? I mean, we've talked about this. At the same time I was bussing tables and waiting tables. Yeah, immigrant fresh off the boat myself, so to speak.

Evelyn:

I think it's amazing. I often wonder if we were ever sitting at Clown Alley at the same time having a burger or something like that.

Declan:

I mean, I have no doubt that we definitely brush shoulders in either Specs or Vesuvios or Clown Alley For sure. Let's face it.

Evelyn:

Right and we've been on a collision course.

Declan:

Maybe it's bound to happen, right, yeah, yeah, it's really interesting. There's a few other people I've met in recent years, actually in the industry, who also worked, you know, either in service or some other aspect of the food industry or wine and beer industry down towards the wharf in the mid-90s. It's so interesting.

Evelyn:

It's interesting. There's sort of like, I think like enclaves of people who are of a similar bent or with similar goals or from a similar place. It's kind of a birds, of a feather thing, and so in a way it's very coincidental that we were down there and then in another way it sort of makes a lot of sense, yeah.

Declan:

Yeah, well, it has to yeah.

Evelyn:

Yeah, Well, it has to because it happened right there has to be some reason.

Declan:

There is some reason.

Evelyn:

So, yeah, so I did this bookkeeping thing for many, many years. I enjoyed it. I really liked working for small businesses to help them become more profitable. And around 2004, I met someone who was a friend of my family, who was a mortgage broker and was actually looking for some accounting advice on how to track his mortgage business, and and we had a conversation, and in the middle of that conversation he just said you know, if you've ever thought about a career change, I've noticed that you are really good at explaining accounting concepts in layman's terms. He says I don't really understand any of this stuff, but when you explain it it makes perfect sense.

Declan:

Yeah.

Evelyn:

So if you've ever thought about being a mortgage broker, come on over. And at first I thought, no, no, I can't do that. I've got a job with benefits, blah, blah, blah. But my job with benefits wasn't really paying very much, so I really started giving it some thought and so later, in 2004, I got my real estate license. Oh, you did. Oh, yeah, well, so I was a mortgage broker, and as a broker you have to be licensed by the DRE Right. So I got my license in 19. I'm sorry, 2004.

Evelyn:

Okay 01460924 was my license number.

Declan:

Okay, oh, okay. Yeah, I guess I did know you do actually need, but then you need an MLS and an NMLS number on top of that, right?

Evelyn:

Right. So then later on in 2008, everybody had to get the NMLS number.

Declan:

Okay.

Evelyn:

And then if you work for a retail bank, like I do now, we're licensed through the Department of Corporations rather than the Department of Real Estate.

Declan:

Okay.

Evelyn:

So I no longer need the real estate license.

Declan:

That's so interesting. Did the NMLS requirement?

Evelyn:

the requirement for that number was that, as a consequence of the recession, yeah, as a result of all the 2008, the SAFE Act enacted this thing that mortgage brokers had to be registered nationally. Because part of what was happening before 2008 was that people who were committing mortgage fraud, mortgage brokers who were doing fraudulent things would get caught in one state Right, and then they would leave and they would just go set up shop in another state Right. And so to stop that, we began having national licensing so that everybody was registered with this national entity and people could complain to that one national entity.

Declan:

Right. Right, and those were all good measures that were enforced. I know it was a tough time as a lender or a loan agent. It was a tough time because things change in terms of pay. I mean it was a tough time for, obviously, the entire globe. But as a professional in the industry, there were changes, right.

Evelyn:

There were a lot of changes. There were a lot of documentary changes right. We went from the good faith estimate and the truth in lending statement to the documents that we have. Now we have the loan estimate and the closing disclosure, right, and so we had all those TRID requirements and TRID the acronym is the reason I drink was what some people were saying at the time, because they found keeping up with all the changes difficult and, I think, a little scary. If you're in a business for a while and you're used to doing things one way, it can be daunting to say, okay, now we're going to change how this is done, change how people are licensed, but at the same time it was a great change. There were too many people who were doing too many things that were not in the interest of the consumer. This is a consumer service business. We're agents of our clients and what that means is that we have an oath of obedience to them right.

Declan:

Well, so the CFPB was born around the same time for the reasons right, all part of that and that's getting degraded now.

Evelyn:

Unfortunately, there's a lot of pressure from this administration to degrade or otherwise put pressure for things to be different, not to regulate, not to regulate these things, and what's unfortunate about it is that it affects people in a lot of different financial sectors. Things like payday loans, which can be very onerous. Credit card rates right, how high can those go? And where do people go if they have an issue, if they really have been taken advantage of? Where do they go for somebody to listen to their problem and see if maybe they are owed redress, right?

Declan:

You know, yeah, and that's becoming more and more difficult because there's fewer staff, no staff really to address concerns, right, yeah, so okay, well, listen, all of this brought you up past the recession. You stayed in the game, oh yeah. Remind me when you went to Guaranteed Rate, because you've been there a while.

Evelyn:

I've been there since the beginning of 2019.

Declan:

Yeah.

Evelyn:

Yeah, so I worked as a broker from 2004 till 2014. Yeah, 2014. And then I went to a small retail lender that's headquartered in Houston and I worked there for until 2019, about five and a half years, and then I came to Guaranteed Rate.

Declan:

I remember Guaranteed Rate kind of. It was kind of similar to Compass. It was in the sense that there was no Guaranteed Rate and then all of a sudden there was a Guaranteed Rate was everywhere, that there was no guaranteed rate and then all of a sudden there was a guaranteed rate, it was everywhere. That's how it felt back, you know, 10 years ago, right, it just kind of emerged and they were immediately fairly well regarded, you know. And it's a place to this day where if I see a loan broker, mortgage broker associated with guaranteed rate, I feel pretty good about it, like reasonably confident that they have a good reputation.

Evelyn:

That's really good to hear. I think we do have a good reputation, in part because we have a process that's really efficient. Some people joke that we're actually a technology company that just happens to do mortgages. So we're constantly upgrading our technology and that's the reason that we can get things done efficiently and quickly. Our size allows us to roll out really so many different loan programs, and that's part of the reason that I went there.

Evelyn:

I really hate saying no to a client, because really oftentimes when we say you don't qualify, what we really mean is I don't have the program that you qualify for, and so I wanted to go somewhere where I felt like I would have the whole candy store at my disposal, that I could essentially shop for my clients. I still have kind of that mortgage broker mindset that I'm a personal shopper for the best mortgage that fits my client the best, and that's what I like about rate is that we have all of those products there and then, once somebody's in contract, we have a really great process for taking them through the whole way, so that things don't fall through the cracks. Everything happens really quickly, we close on time and that's fun for me.

Declan:

Yeah, that's a good thing, that's a good thing. So you've been around for a couple of decades.

Evelyn:

You've weathered, right, you've weathered a few things. How did that happen?

Declan:

Oh, my gosh, but you've weathered quite a few things and so I wanted to talk to you about yesterday. So today is September 18th, yeah, yesterday. So today is September 18th. Yesterday the Fed met and everybody was expecting a rate cut, and every time I chat with a mortgage broker on the show here it's always an effort, it seems, because I listen back on the various shows it's always an effort for anybody who's listening, especially consumers, to discuss why is it that when the Fed cuts the rate, sometimes mortgage interest rates go up, because you often have consumers waiting for that Fed rate cut in anticipation of mortgage rates going down.

Declan:

So, over and over again, I find that this is what we're trying to do. So let's make that the meat of the conversation here today, all of those dynamics and it for this year in particular. It was really and I talked to somebody else Farmers Moonside, I don't know if you listened to that I did.

Evelyn:

What a great podcast.

Declan:

It was a good podcast and you know we talked about this a few months ago how it felt like deja vu and we were going to have something very similar to last September. We'd waited literally for years for a rate cut and there's a lot of excitement behind it. And prior to the rate cut, unbeknownst to people who aren't in the know, the rates had trended down. But immediately after the announcement of the rate cut, which was anticipated, mortgage rates actually went up soon after because of a bad jobs report or other things. Right, useful to walk through the process of understanding. You know the Fed board. What do they do, what do they actually control and what happened yesterday and what was the impact on mortgage rates. And we're not going to try and predict the future, but we can kind of look at what are the trends people should be aware of.

Evelyn:

Okay. So if we look at the reasons that the Federal Reserve's decisions do not directly affect what is happening in the mortgage market, I think it really comes down to a difference of the process, of how things are timed. Okay, let's talk about the market that is open five days a week for investors to invest in. Okay, let's talk about the market that is open five days a week for investors to invest in. You've got the stock market, you've got the bond market, and both of those markets are competing for investor dollars on a daily basis. Correct, right, investors want to put their money where they're going to have the biggest rate of return. Right, it's kind of like there's a plateau with two cliffs and there's lemmings running back and forth attempting to figure out which cliff they're going to jump off of today, but those two markets are competing in real time for investor dollars. Now, if you think about that, those investors are doing what they do every day they're buying stocks and selling stocks. They're buying bonds and selling stocks. They're buying bonds and selling bonds, and that is real-time market activity that influences that mortgage-backed securities market, that drives mortgage rates. That's why mortgage rates change every day, and sometimes more than once a day, because those economic forces are happening in real time. There can be geopolitical events that drive the bond market as well, right, because they can make investors afraid of investing in one area, so they move their money somewhere else. So those forces are happening every day. So that's the bond side, right, and you can look at the graphs. You can see where certain things happening are influencing those investors to do what they do.

Evelyn:

Let's cut over to the other side now and talk about the Federal Reserve. The Federal Reserve is set up like this Okay, we've got a total of 19 people who are involved in these discussions. You have a seven-member board of governors, which is appointed by the president. You have 12 regional federal reserve banks. Each one covers a different geographic area, and so you have this federal open market committee, which is made up of the board of governorsors, and then five of the Reserve Bank presidents.

Evelyn:

Okay, the president of the Reserve Bank of New York is a permanent member and the other voting positions rotate among the other members. Okay, so basically, you've got 19 people who are involved in these discussions and they are reacting to these forces that are happening in the economy. You have 12 of them who are actually voting. Okay, so they are meeting about eight times a year to discuss what has been happening. So they are always looking back and interpreting the data since they last met and using that data and interpreting it to attempt to steer towards their dual mandate, which is controlling inflation and full employment.

Declan:

Okay, so there's a dual mandate to control inflation and full employment.

Evelyn:

Right.

Evelyn:

All right so monetary policy is supposed to be based on decisions that will help steer the large ship of the huge American economy in a lane that has lane lines, I kind of think of it. One side is inflation, one side is employment. So they are always looking back at what's already happened. The bond market already did it already happened. The bond market already did it. They're doing it every single day, and so the Federal Reserve decision often is a decision that people have already been waiting for. They already expect it, and so it's already priced in the market because the real-time market actors are looking at that same data and saying I'm not waiting for the Fed to make a decision. I already know what I want to do with my investor dollars based on this data. That's why we see rates come down before the Fed announcement.

Declan:

I see. So it was like a month ago or so that we were starting to get news from yourselves and people in the industry. Hey, rates have come down. They're already pricing in the real possibility of a Fed reserve cut. Right and rates were coming down.

Evelyn:

Yes.

Declan:

And we've been talking because it's baked in, as you said.

Evelyn:

Yeah, you could think of it as being baked in. It really is that the market is just reacting in real time and then the Federal Reserve is a bunch of governors who are saying, okay, here is our formal decision, which is designed to steer the economy in the correct direction. Direction. So it's almost like they review the facts, they have all their discussion and then they make their vote. So the vote that they make is one thing right, we're going to lower rates, we're going to keep rates the same or we're going to raise rates.

Evelyn:

But then there is a big statement, a press release, that they give after they make the decision, and that press release is often what will move the market. And I think that's what happened yesterday. Okay, right, because you could look at the yield on the 10-year and it went down after the announcement. But then, as soon as Powell came out and started the press release and kept talking about what was going on in the market, then you saw that bond start to come up. I got an alert to lock right, the bond market started going in the other direction and rates started going up. Because you get the decision and the decision is great. And then you unpack the decision and you hear about all of the factors that went into the decision and all of the disagreement that went into the decision and all of the disagreement about the right decision to make, and suddenly the picture is not. I want to say it's not so rosy, but really what I would say is it's not so black and white anymore.

Declan:

Right, okay, okay. Now, when you say the bond market started coming up, you're saying the yield.

Evelyn:

The yield started coming up, and so when that happens, rates will track with the 10-year yield.

Declan:

Okay, so we're watching the yield on the 10-year Treasury bond, and as that yield goes up, typically mortgage rates will follow suit. They'll begin to rise as well, and I believe somewhere between about 1. A half and two and a half points.

Evelyn:

Right. The spread typically is around two. That's the goal point. But it's yeah one and a half to two and a half is the most common range.

Declan:

Okay, and then yesterday so I've heard this before and I knew that you know the Fed was going to make their announcement Pacific time around 11 am, but that 11.30 am or 2.30 pm East time Jerome Powell would have the statement and that's what everybody was hanging on haven't met target inflation. But we're shifting from, we're shifting in our dual mandate. We're shifting our emphasis from target inflation to jobs, to labor Right. Yes, okay, why do you think?

Evelyn:

that is Well, you tell me. So we've seen a lot of weakness in the jobs report over the last few months. Right, We've seen weak numbers coming in to the point where People are getting fired from the Bureau.

Declan:

People are getting fired because they're the messenger.

Evelyn:

We've got to shoot the messenger, I guess. Right, it's the easy target. So labor has been weakening.

Declan:

Yeah.

Evelyn:

And inflation has been coming down. However, we had a really strong retail sales report this month, and so there are inflationary forces, right. The tariffs that have finally started to be enacted are now starting to have some effects on prices on some of the industries that are more tariff sensitive, so we're starting to see some inflation from that. Do we really know where that's going? Yeah, very volatile, insecure environment for investors then, who don't really understand that pattern of how to predict what's coming down the pike. So, on the one hand, we have inflation, which is being somewhat persistent, although coming down, and then, on the other hand, we have labor, which is getting weaker and weaker. And so when you have strong inflation and weakening labor, which is getting weaker and weaker, yeah Right. And so when you have strong inflation and weakening labor.

Evelyn:

That is more of a stagflation situation. And it's really bad for the economy because people are earning less and less money to be able to buy goods that are more and more expensive.

Evelyn:

Right, right and so there is friction right now between those two parts of the dual mandate of the Fed, and I think part of the problem was during this press release yesterday. Powell was talking about how, because population growth is slowing in America, that our economy would be okay even if we had zero job growth for the foreseeable future. Does that make sense? I'm not sure that makes sense. I mean, how much does population growth have to slow before zero job growth supports the economy? So I think those are confusing messages for the market to digest.

Declan:

Talk to me about the dot plot. My impression is that recently as yesterday, it's become a little less unified. Am I right about that? You?

Evelyn:

are. Okay, you are. So the dot plot is a. It is a type of a graph where each of those 19 people who are discussing this decision put a little dot for each year on where they think the federal funds rate will be at the end of that year. I see, and so I have the dot plot here from 2025 to 2028. Yeah, so that's this year and the next three years, and then the longer run. I'm not sure how long the longer run is. It's anonymous, so there's a dot for each person. However, we don't know whose dot is whose. Oh, I see, this is so interesting. It is really interesting.

Declan:

It's like a child's game.

Evelyn:

It is, and it's a little bit of a detective game to see if you can figure out who said what. Right, because some of these people are making statements and so you might think, okay, here's the person who said who made the lowest prediction, right? Okay, okay. So the dot plot for 2025, it has one dot at the top and one dot way at the bottom. Okay, 2.75 is at the bottom, really.

Declan:

Who would say such a thing? Who would?

Evelyn:

Who would Well? I don't know If we had to guess, and we actually do. There is a governor who was sworn in just before the meeting picked by the president, so we think that it's the new guy who's going for 2.75.

Declan:

Oh see, this is interesting now, because I don't want to get political. We're not going to get political here, but you are trying to understand, given the information you have. Like we're trying to piece it together and it's interesting to see here in real time how the current administration's influence and constant need to put people in positions of influence is affecting things. That's really really very interesting observation.

Evelyn:

Right. So the thing is, though and this was something that Powell talked about yesterday he was asked a question about how could this new person because they are very pro-lower rates would they have an impact on the whole board, and his response was they would have to convince the other governors to vote for what they want, and it remains to be seen whether that will happen or not. There's a lot of pressure for lower rates, but if you look at this dot plot, what's interesting is that, for 2025, you have a one dot at the top and one dot at the bottom, and then everybody else is basically in two pretty evenly divided lines, so a couple people in the middle, yeah. Then for 2026, it gets much more spread out.

Evelyn:

You have two people at the top at 3.75 and two at the bottom at 2.5. Right, and then everybody else is kind of more evenly distributed between there. Right For 2027, you have two at the top and one at the bottom and everybody's kind of in the middle. And so there's more, I guess, more belief that rates will continue to go down and allow them to lower that federal funds rate more in 2027. But then when you get to 2028, it spreads out more again. And so I think these people are thinking about long-term economic factors, doing their best to guess based on what they know right now and saying, well, if I had to get out my binoculars and look way out in the future, here's what I think things will look like two, three years from now.

Declan:

Can I just throw out a quick question. If we were to see Linda Cook be removed the Fed board governor who's currently under scrutiny by the administration if we were to see her get removed and I think there's really a huge push even today to get her removed from the board Would you anticipate then that whoever came in in her place might be one of the lower dots on that interest rate? Would that be expected?

Evelyn:

Somebody with that same opinion. Yeah, I think that's likely. You make a really good point. It's a really good question which dot is Lisa Cook's Right?

Declan:

Which dots are hers going forward, right, what's her trend been?

Evelyn:

She's a fairly dovish governor, okay, so their stance has been restrictive for longer, right? We know that they've kept rates higher than they needed to for long. They're being cautious, yeah, right, and so I think that she would have been one of the votes for lowering earlier, maybe at a previous meeting.

Declan:

Yeah.

Evelyn:

There's two more meetings between now and the end of the year.

Declan:

Okay.

Evelyn:

Two more opportunities for a rate decision Right, and I see Lisa Cook as a fairly dovish governor. If she was replaced with somebody more dovish, could that have an influence on the size of a rate cut? Perhaps? I really think it's more data-driven, though, okay.

Declan:

I really think it's more data-driven have any greater authority about you know. Is this a collective decision, truly, or does he get to decide the final outcome? Or how does that work? Is he just a mouthpiece, for I?

Evelyn:

think he's pretty much a mouthpiece, right, he is in on those discussions, right, but it's the people who vote Okay who make the decision. Yeah, they are involved in all the discussion. I mean, you can kind of think of it like you have this big discussion of these 19 people.

Declan:

Yeah.

Evelyn:

And then 12 of them are going to go decide.

Declan:

Yeah.

Evelyn:

And the 12 are going to rotate. Okay, right, and so over time you get the different flavors as these different voting members rotate in and out.

Declan:

Yeah, yeah.

Evelyn:

It's an interesting setup.

Declan:

Okay, it's heady going actually. So we're at a point right now where rates are actually regardless of any political influence. It's actually it's a lot better than it was, let's say, in 2022. They're the lowest they've been this year.

Evelyn:

We got as high as 8% right, we did get as high as 8%.

Declan:

Yeah, in 2022. Yes, and now they're the lowest they've been this year, just above 6%, and we were talking how actually certain rates are lower, like FHA, because I guess the popular perspective in the industry is if we could see rates below for mortgage rates, if we could see them drop below six and there was a five in front, that it might have a good, favorable impact on you know, and boost home sales, that kind of thing, because it's been heady going Right. You know, this September and the summer things got a little sticky in the real estate market, yeah, but FHA is below 6% right.

Evelyn:

FHA is below 6% right now. We're seeing VA loans below 6%. I actually locked a conventional loan below 6%, and so before the Federal Reserve meeting, I will add and so, yeah, we are seeing rates come down. We're in the low sixes, mid sixes on some transactions and the trend is down right. If you think about how we were at eight in 2022, and we're at six now, that's a large drop and so the market's hanging on another quarter point. We got to get that five handle on that rate. That the idea is that it would bolster confidence. People who have been waiting on the sidelines will come back into the market and there will be a lot more demand for real estate. And the last time we saw that happen, we also saw prices jump, did we not?

Declan:

Yes, yes, yes, you see them jump for sure. And you also see something else. It's kind of the canary in the coal mine in some ways. Maybe I'm wrong, maybe that's a wrong analogy, but I would imagine when rates went to eight you probably refi. Business probably just dried up completely.

Evelyn:

It vanished.

Declan:

It vanished right, and in the last few weeks it's probably picked up. I'm guessing, Sure, yeah.

Evelyn:

Sure Well, because people who purchased a couple of years ago and got mortgages in the sevens or even the eights now have opportunities to refinance and really save significant amounts of money. Right, refinancing into the low sixes, yeah, activity in the buyer's market as well, people showing up to be pre-approved, and nationally I think purchase applications, purchase mortgage applications were up about 3% since last week.

Declan:

Wow, amazing, that's amazing. That's good news. I want to explain for anyone listening, because I find this fascinating too and people might not be aware. One of the jobs you have is to lock a rate for people, right, and so typically people get pre-approved, but they're at the whim of the market. They can't lock a rate just because they're pre-approved, and my understanding is that you really need an agreement between a buyer and a seller in order to lock a rate. You need a ratified contract and then you have a very short period of time. But, as you said earlier, rates can move in a day. They can actually move a couple of times a day, and I always think about this because I've never had to do it, advising around you wait till tomorrow at two o'clock, things like job reports coming out in the same week that you're going to lock a rate. How does that feel? How do you do all that?

Evelyn:

I do not like roller coasters. I'm not a person who's going to go get on a roller coaster willingly and ride it, and it feels a little bit like a roller coaster ride. This is the thing With a volatile market. The locking strategy is to lock as soon as you can because there's too much risk of rates going up, and so floating might work out sometimes. But overall as a strategy and by floating I mean not locking as a strategy it doesn't work enough of the time to make it a great strategy.

Declan:

Okay.

Evelyn:

It's not my money, right? I'm locking somebody else's loan. This is the interest rate they are going to have, and so for me to be cavalier or say, well, let's wait and see what might happen tomorrow, that's not really for me to decide. If my client insists on that, then I will defer to their decision, and yet at the same time they know that's their decision. My strategy most of the time over the last couple of years, with how volatile things have been, is to lock as soon as you can. We have a renegotiation policy where, if you're locked and rates drop by a certain amount, you can renegotiate the rate lower. So you can always float down to a lower rate if the market changes substantially and yet you're protected if rates should go up.

Declan:

Does that increase the duration of the escrow? No, no really no.

Evelyn:

We have certain lock periods 15, 22, 30, 45 days and so we're going to lock as soon as we can for a period of time which we believe will allow us to close the transaction, okay, okay. So I read a lot of stuff on mortgage discussion pages people who are bemoaning the fact that they didn't lock yesterday because they thought news was going to come out a certain way that would affect the market in a positive way, but then that didn't happen.

Evelyn:

And now you get to go explain to somebody that yesterday we were talking about six and a quarter, but today it's six and a half or whatever. So for me, the strategy is to be more conservative and lock sooner, and I feel like over time, that strategy has played out better. There's a metaphor that I like to think about, which is if you're in an airplane where there's a lot of turbulence, right, and that mimics a volatile market, right, things are going up and down. That's uncomfortable. Once you lock in your rate, you're really standing on the ground, you know what your rate is and you can watch that plane fly around in the air and go up and down and be really glad you're not on that plane anymore. Yeah, that's a nice analogy If you're one of the people who decided to float and you're still on that plane anymore.

Evelyn:

Yeah, that's a nice analogy If you're one of the people who decided to float and you're still in that plane going up and down, looking at that person on the ground who's locked, you might wish you're down there. Get me off this crazy thing. Yeah, that's just insane. And when you're in a real estate transaction, there are a lot of other things to think about. You've got to get your inspections done. You've got to get your earnest money deposit in. You have to do all these other things about the actual house that you are buying, and so focusing in on whether or not to lock, based on some possibility that some economic indicator will come in that will benefit you, doesn't seem like the best use of time.

Declan:

You're right.

Evelyn:

Does that make?

Declan:

sense. Yeah, that makes perfect sense. Well said, let's talk about a few other little things. Okay, seeing as I've got you here, there's been a lot of well in a higher for longer rate environment, particularly when things went to 8%. There was an increased awareness of things like temporary buy-downs, and I just want to talk a little bit about them Temporary buy-downs, sometimes called one-two buy-downs, one-two-three buy-downs, right, and what are those compared to a permanent buy-down? Let's talk about that a little bit, because I'm just curious about how you would explain temp versus permanent.

Evelyn:

I love this topic. Okay, you know me. You know I'm a little bit of a numbers nerd and as a former bookkeeper, financial projector person, I really like to look at options side by side and see how they play out, not just at the moment of purchase but over time. So here's how these two different ways of reducing an interest rate work. I'm going to talk about the permanent one first, because it's much easier to understand. Okay, yeah, I'm going to talk about the permanent one first because it's much easier to understand.

Evelyn:

Okay, let's say, you have some extra money and you're going to use that to buy down your interest rate. Yeah, with a permanent buy down, really, what you're doing is you are paying a percentage of your loan up front it's considered prepaid interest and you're saying to the lender if I give you some interest up front, how much will you reduce my rate over the life of the loan? We do a break-even calculation to make sure that you actually break even in a reasonable amount of time and if that makes sense, then you have a lower rate over the entire life of the loan and that rate buy down can be paid for with a contribution from the seller. The seller can give a buyer credit towards closing costs, and those credits can be used to buy down the rate or to pay for other closing costs. Okay, so that's just the simple permanent buy-down pay points.

Declan:

Get a lower rate over the life of the loan, okay, and you can do that with a 15 or a 30-year, any program, okay.

Evelyn:

Right, okay, now a temporary buy-down works differently and yes, we have these different versions. There's the 2-1, the 3-2-1. Okay, and what does that really mean? Okay, let's just use the 2-1, because this isn't an all-day show. This isn't an all-day show With a 2-1 buy-down.

Evelyn:

In the first year, you are going to make a payment that is based on a rate that's 2% lower than your note rate. In year two, your payment's going to be based on a rate that is 1% lower. And then, in years three through 30, you're going to pay the rate on your note. This is really different from the permanent buy down, because what's actually happening is okay, let's just say the rate is six and a half percent. Yeah, your rate is six and a half percent the whole time you have the loan. Yeah, in year one, the credit that the seller gave you is being used, dollar for dollar, to pay the difference in the payment between your portion based on the four and a half and the actual six and a half percent payment. In year two, again, seller funds that were contributed at closing they went into an escrow account and that dollar amount in the second year is going to be the difference between 5.5% and 6.5%, I see Is paid out of the account, right.

Evelyn:

The reason I feel like the permanent buy-down does people a better service over the long run is that if rates do not go down by year three, you adjust up, you adjust up, and if you can't refinance into a lower rate because rates haven't gone down, then you've got that payment and, yes, it's great that you had a lower payment during those first two years. I'm not knocking that, I'm not knocking that at all. And it's great for some people, maybe people who are going to, in a year, reenter the job market after being on maternity leave or something like that. Right, it makes a lot of sense. But if you compare how much is saved over the long term, the person who has the permanent buy down is going to have that lower interest rate. Sure, it won't be lowered by as much, but it usually works out that by year three, the permanent buy down because it's continuing to save you money, saves you more money over the long run. Okay, interesting, right, and so there's really no right answer. It's the answer that's right for the individual.

Declan:

Yes, yes, yes.

Evelyn:

I think it's important to compare both options side by side and give a hard look to how much we think rates will be going down over the next three years if you're doing one of those buy downs.

Declan:

Right, right. So a 2.1 in 2022 actually might have worked out reasonably well for somebody, or a 3.2.1. I got the numbers out of sequence earlier, I didn't realize.

Evelyn:

It's okay.

Declan:

But so they're not adjustable rate mortgages per se. Right? So you know, let's switch now to adjustable rate mortgages. And what are those and what are the risks and benefits with an adjustable rate?

Evelyn:

Before we do that, can I say one more thing about the temporary buy down? Yeah, I'd love you to. Okay, they can be a great tool for a seller who has a property that's been on the market for a while. That's not getting enough interest.

Declan:

Right.

Evelyn:

And it can be a way for them to offer a little something on their property that might garner interest from a buyer who is maybe a little bit on the bubble themselves, got it? It can be a way to bridge a gap, got it?

Declan:

And that's a good thing, an incentive. Hey, work with me, I'm going to offer you this incentive. Right, it's going to work out well for both of us. Right, it's a nice creative solution to maybe getting property to move.

Evelyn:

Right, yeah, because we know too, sometimes a property has been sitting there for a while and it can be a beautiful home. It's just that the market of buyers has kind of looked at it and passed it by you know what's interesting right now in the market.

Declan:

I'm seeing and most realtors are seeing this too. It's quite surprising how many homes are on the market now for people who purchased in 2020 and 2021.

Evelyn:

Yes.

Declan:

And those purchases were made when rates were at 2.75%, and it's not unusual. Let's say, for somebody, a property purchased for $1 million might, in this market, now be worth, let's say, $850. Right, and people are a little stuck. 50. Right, and people are a little. People are a little stuck, but it's quite surprising to me how, how many of those kinds of houses I'm seeing on the market. It's. Then you start to understand where the tension is in the current market. Right, yeah, yeah.

Evelyn:

And isn't it interesting that when they were buying those houses in 2020 and 2021, some of what was driving the those moves were people who wanted to change where and how they lived. Because of their response to COVID, because many people were beginning to work remotely, they didn't need to live close to where they worked, and so they did these big moves and they could buy for a lot. They had a lot of buying power because rates were so low. Now it's flipped around. We're looking through the other end of the binoculars and everything looks a little bit smaller.

Declan:

I know, and it's so funny and I'm starting to you know things. Just, it's one of the things about getting older. You just start to see the news stories get recycled that you'd been familiar with a decade before. Sure, you know, I'm just starting to read the commute time stories now in the news again. Yeah, and how the Bay Area is the longest commute. I was like I remember all of this.

Evelyn:

Haven't we heard this?

Declan:

before, right, remember, in the mid-aughts and all that stuff, yeah, okay, so have we talked enough about temporary buy-downs.

Evelyn:

Yes, I just wanted to throw in that one other. I felt like I was being too derogatory about temporary buy-downs, and so I just wanted to be clear that I do think there are situations that they are perfect for.

Declan:

Right, but they're just not a catch-all solution. Correct, I kind of felt like a few years ago they were just being rolled out as this great cure and like everything, there's no silver bullets, ever in any aspect of life right. There's only care and consideration for your life circumstance.

Evelyn:

Right, yeah, and you know we saw temporary buy-downs before.

Declan:

Yeah.

Evelyn:

In 2006 and 2007.

Declan:

And that was a beautiful recipe. There wasn't it For all of the things.

Evelyn:

So it's interesting that you know that was like some declining markets. Let's get people, let's do something to motivate people and make it more possible. Here we have it's not the declining market, but it's the higher interest rates. What can we do to make it more palatable or more doable for a buyer to buy now? Right, yeah.

Declan:

Do you think the current administration's pressure on the Fed to kind of switch from the interest rate mandate to sort of the jobs mandate, that the current administration there's an effort to make money cheaper, to stimulate job growth, I mean, is that a legitimate and fair pressure for them to bring to bear? And then, just kind of, you know, let's leave inflation to one side for a minute.

Evelyn:

I'm not really sure that that's the reason that there's pressure to pressure rates lower. I'm not sure that it's to stimulate job growth. I think it is more for people at the producer level to have cheaper access to money, which then is supposed to sort of ripple out through the whole economy. And I'm sure those other things are great too right. If other interest rates that are tied to the federal funds rate are dropping credit card rates, auto loan rates, things like that then that stimulates people to buy.

Declan:

Yeah, but if you have tariffs at the same time, it's very confusing, isn't it?

Evelyn:

I feel like the strategy is disjointed because the approach is not being made by people who have worked in any of these positions, where they're seeing the real factors that are influencing the economy. For them, it's more like I can just put my finger. If we just put our finger on the scale and tip it a little bit, then this will happen. The problem is that it's really important for a large economy to have an independent central bank, because otherwise it erodes trust. Investors don't know how to figure out what to do. They don't know how to figure out how to make their decision, and so I think that's the danger when we think about influence in those Federal Reserve decisions. I think it's fine for a president to say that they want rates to be lower.

Declan:

I mean Biden said it, I mean every president is somewhat annoyed with the Fed chair.

Evelyn:

Everybody wants to have free ice cream on Friday, right, you know. But is it smart? Is?

Declan:

it smart. Yeah, good question Is it smart?

Evelyn:

Yeah.

Declan:

Good question when you talk to consumers in a different way than I do. I mean, I'm out showing property, we're trying to sell houses, solve problems, life situation, all that, but in my mind you're talking to people perhaps more about their personal finance.

Declan:

I'm never running credit checks, for goodness sakes or investigating or vetting people's tax returns or any of that stuff. But when you're talking to consumers I'm just wondering lately do people seem a little more concerned, confused, worried. I mean, is there more, is there more of that kind of flavor coming into the conversations? It's very anecdotal, I know this isn't a scientific survey, but I'm just curious because you've been doing this for a couple of decades, you know. Is there more of a flavor of caution, concern there?

Evelyn:

is and here's what I would say People, when they don't feel secure in their financial situation, in their job, they're very unlikely to make the commitment to buying a house. And in the first seven months of this year, I saw a lot of people being very worried about their jobs. We have a big tech sector and a big biomedical sector here and a lot of people involved in the environmental arena, and a lot of those people were very concerned about losing their jobs because of funding being cut. All these doge cuts and cuts that we had at the federal level removed funding that supports jobs that people go to work every day and have, that they earn income from, that they then use to purchase homes. And when people are thinking that their job might be lost because of a cut in funding, they waited out.

Declan:

Yeah.

Evelyn:

Right. I talked to some people earlier this year. They are scientists from a foreign country and they were saying you know, if we lose the funding for our project, we might have to leave and go back home. Wow, we don't want to buy a house until we know we can stay here, and so I'm seeing a little bit of that easing. Yeah, and so I'm seeing a little bit of that easing. However, it's that volatility in the job market, the insecurity, that will keep people from making a big decision like purchasing a home.

Evelyn:

Yeah, right, if they think they might even have to move to go live somewhere else where a job might be more available to them. Yeah, absolutely.

Declan:

They don't want to put down roots. Yeah, yeah, absolutely. Well, listen, let's wrap it up. Thank you for your time. I know I've probably gone longer than I told you.

Evelyn:

I would I know?

Declan:

But that's the way it always is. Let's wrap it up with adjustable rate mortgages, since that was something that came on my radar. I was telling you yes, and we'll just kind of walk through the pros and cons of an adjustable rate mortgage, because there are pros and cons. Yes, and there are different types of adjustable rate. What is it? Let's wrap our arms around arms. No.

Evelyn:

An adjustable rate mortgage. It is just what it sounds like, Right? It is not a fixed rate mortgage Right Now. Adjustable rate mortgages often have a fixed term at the beginning. Okay, In fact, all of the adjustable rate mortgages I have right now.

Declan:

Yeah.

Evelyn:

Except for home equity lines, which is a different type of adjustable rate mortgage. But all the ones I have now are fixed for at least three years Three years, five years, seven years or 10 years, wow, okay. So you get an introductory rate, okay, that is fixed for a period of time, yeah, and then after that it will adjust periodically based on whatever index it's tied to Okay, plus a margin over that index. So if we break that down a little bit, if you have what's called let's go with a 7-1 arm it's going to be fixed for seven years and then it's going to adjust every year thereafter. So you're going to make 84 payments at the fixed rate and then payment 85. Your rate's going to be adjusted based on whatever the index it's tied to.

Declan:

How many indexes are there that it could be tied to?

Evelyn:

I would say there's two main ones that we see CMT, which is the Constant Maturity Treasury Index, and the SOFR S-O-F-R, which is newer, and I'm sorry but I cannot remember what the acronym stands for.

Declan:

I'm impressed anyway.

Evelyn:

So those indexes, and then typically there's a margin of 2.5% to 3% over that index, right? So later on in the future we're going to go look at what that index is. Yeah, we're going to add, say it's 2.75%, and then we're going to round up to the nearest eighth of a point and then the following year that's going to happen again. There are also some adjustable rate mortgages that adjust every six months. That would be called like a 7-6 arm.

Declan:

Okay, so it's always going to be a number, slash another number.

Evelyn:

Correct, it's going to be number slash, number Right. First number tells you how long it's fixed for Okay. Second number tells you how often it adjusts.

Declan:

Right Once it starts to adjust. So the first is like a year thing and the next is typically a month yeah, okay, very cool thing. And the next is a typically month. Yeah, okay, very cool, and so okay. So what are what are the benefits? If you're talking to somebody right now yeah, hypothetically, why why are you bringing adjustable rates to their attention and why on earth would they?

Evelyn:

have an interest and what's it all about, Right, Okay. So right now there can be an advantage in taking out an adjustable rate mortgage because, due to spreads and how loans are priced, the rate on an adjustable rate mortgage can be lower in that introductory period. And so right now I'm seeing, say, on a seven-year arm, typically a quarter of a point lower on that beginning rate. In some cases it can be more. Sometimes it's as much as three-eighths of a point or a half of a point, considering your options. What you're really thinking about is A where do I think rates are going to be over that period where my rate is fixed? Not just where will they be when it starts to adjust? Am I going to have a good jumping off point anywhere during that fixed period? Okay, Right, Because you might feel like if you could lock in at the same rate or a lower rate on a 30-year, you might want to just lock it in forever.

Declan:

So can I ask a question? Do people typically look at an arm and they know that they have the freedom to? I think most people will want at some point to refi into a conventional loan. Sure Right.

Evelyn:

Yeah.

Declan:

Is that an accurate, fair thing to say?

Evelyn:

In many cases yes.

Declan:

Okay, and so they're looking. Can you refi out of an arm anytime, or is there a cost to that, or do you have to wait for a period of time? What's the waiting time?

Evelyn:

There's really no waiting time. It doesn't necessarily make sense to refinance often because there are closing costs on a refinance that are going to be absorbed somehow. They're either going to be baked into your loan amount or into your interest rate, or dollars are going to come out of your pocket, right, okay. So that's called churning your mortgage, where you're refinancing all the time. Okay, there really has to be a tangible benefit to make it worthwhile. I do think that what many people are thinking about is do I have a rate that is fixed for a long enough period of time to allow me to either improve or extend this rate over the longer period? Okay, how about people who, maybe, are only going to own their home for five years?

Evelyn:

Right, if you're going to sell in five years, do you need to pay a higher rate on a 30-year fixed Right? Maybe you take the adjustable rate Right. Plans do change sometimes, but those are reasons that people might find an arm advantageous. Okay, I've had both kinds of mortgages on my homes. Yeah, I had an arm when I bought my current home. Yeah, I had a 5-1 arm, so it was fixed for five years, got it and then it adjusted. On the 61st payment, my interest rate went down when it began to adjust Right. Okay, and I kept it until about, I don't know, 2018, when rates started to get worse. I knew it was going to get worse when it was next going to adjust, so I refinanced into a good 30-year fixed.

Declan:

Okay, Okay. So it's really something that, again, just like the temp buy-downs these are just carefully, you just have to carefully. I'm thinking like of a scenario where you're anticipating some real wage growth for yourself.

Evelyn:

Right, right.

Declan:

And at some future point. And so you're hedging your bets that you know to get into a property now, at certain you know affordability and over time you'll have more money and you might have the added benefit of you know rates dropping and you can.

Evelyn:

Right.

Declan:

Okay, rates dropping, but there's a lot of moving parts there and there's risk.

Evelyn:

I think it's important for people to work with a mortgage person who's interested in their long-term financial benefit and is going to check in with them when rates change or stay in touch with them, so that when there's a change in their life that might necessitate a different mortgage. The conversation is ongoing, yeah.

Declan:

Yes, yes. So how many people do you continue to have under your care? After they make a purchase, they're checking in with you or you're updating them and you circle back and say, hey, I think you should do this, this and this. Like rates have come down, you do a lot of that stuff.

Evelyn:

I do. You know I'm a real people person and so you know mortgage is a lot of numbers. I really love my clients. I find people fascinating. I love hearing about all the different things that they do their goals for their family, and so I love to check in with them just to see how they're doing. You know what's going on. Your kids are starting school now. It's amazing how quickly people's kids grow up. You know, it's just so. I'm one of those people who just tends to reach out to people to see how they're doing, and those conversations often will turn into things about finances.

Declan:

Yeah.

Evelyn:

Yeah, very cool.

Declan:

Well, let's wrap this up by just you know. Let me just check in with you on a couple of things. So the Fed's going to meet a couple more times this year? Yes, they've indicated that they'll probably reduce the short-term Fed funds rate by, I think, two more, you know, 0.25%, right?

Evelyn:

So, yes, the talk is that they're going to reduce rates at their next two meetings, but again, they're not in agreement over how much, so we'll see what happens. They're meeting at the end of October and then in mid-December.

Declan:

Okay, right before the holidays, very right, very interesting stuff. So you never know, there's always hopefully there's always some optimism as we go into a new year around. You know home purchases picking up and all that kind of thing. There's nothing like, there's nothing like January to bring people out with some optimism and cheer and you know, maybe, maybe you know just like their new year's resolutions just decide on something. This is the year I'm going to do this that or the other.

Evelyn:

I think a lot of those conversations around the holiday table inspire and spur people to action in the new year.

Declan:

Well, yeah, that's a nice note to end on, but then I'm going to end on a note of caution, actually, because I'm concerned about the very mere fact that Chairman Powell, whether or not he survives his full term to next May, he's out in May and how his position will be filled, how he is appointed by the president.

Evelyn:

Powell was appointed by Trump during Trump's first term. Interesting, isn't it?

Declan:

Isn't it so? Lots to be excited about, but also some things to keep watching in this particularly volatile moment.

Evelyn:

It's fascinating to be in this industry and watch how these forces affect individuals in real time. Yeah, I feel like we're very fortunate in a way that we get to be the companion of people and do our best to guide them through somewhat stormy seas. Sometimes, yeah Right, there can be a lot of volatility and sometimes not all of it applies to a certain person, right Right. So we really help people sort through the noise, yeah, and like find their signal. That's really nice and I think that's an honor.

Declan:

Yeah.

Evelyn:

And I feel like it's something that's maybe not there enough for people in this modern technological world.

Declan:

Right, yeah, that's well said. That's lovely. That's lovely. Well, I encourage people. You're among a few mortgage brokers that I often point people towards. I appreciate that and I've always enjoyed getting great feedback. So how can people reach you, should they want to reach out?

Evelyn:

It is very easy to reach me. You can call me at 510-501-8473 perfect.

Declan:

you can email me at evelynfratis at ratecom I'll put that in the show notes by the way and you have a web page I do have a web page that's evelyn fratuscom.

Evelyn:

Yeah, you can find me on instagram and LinkedIn.

Declan:

Yeah, and I post things there every now and then. Yeah, you're great for going out to open house and broker tour and the whole bit. I think on EvelynFratiscom people can actually just start uploading documents and begin the process. You absolutely can do that, which is really useful. So next year, you know, maybe it's your year to buy a house. So I recommend Evelyn Fratitas. She's a great, great mortgage broker and I really appreciate you being on the show.

Evelyn:

Thank you so much. It is so wonderful and I just appreciate it so much. Thanks, Declan.

Declan:

Yeah, you're welcome. See you on the next podcast, everybody. Thanks, Evelyn. This episode of the podcast was edited by me, with original music by Chuck Lindo and graphics by Lisa Mazur. The podcast is brought to you by the Home Factor. Realtors thehomefactorcom. Catch up on the latest news from the East Bay Market in their weekly sub stack published every Sunday. Go to thehomefactorcom to subscribe and if you'd like to reach out to me with suggestions for the show and that kind of thing, please text me at 415-446-8591.

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Evelyn Freitas

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