SANTA CRUZ (November 3, 2007) - During the boom years of 2003, 2004 and 2005 the rates were at record lows and house prices were reaching record highs every month. It was easy to make money in the mortgage industry because it seemed that every one who owned a home wanted to refinance and any one who didn’t own a home wanted a loan to buy one. Our industry became quickly flooded with mortgage originators, many of whom were new and saw the mortgage business as a way to make money easily.

There always has been a low barrier to entry into the ranks of mortgage originators. In California, mortgage originators either have to have a license from the Department of Real Estate (DRE), which requires a couple of classes, some home study and a 3 hour exam, or work for a company licensed by the Department of Corporations (most banks), which has no class or exam requirements.

Since the proliferation of adjustable rate mortgages (and all of their options), selecting a mortgage has become a challenge even for the most sophisticated and educated of shoppers. In addition, as a result of the influx of mortgage originators during this boom time, shopping around for a mortgage became even more of a challenge. To top it off, available loan options, rates and fees are in a constant state of flux.

As you are “shopping around” for a mortgage and interviewing and deciding who to use to arrange your mortgage, here are some questions to ask your prospective mortgage professional.

1) What are mortgage interest rates based on? Believe it or not, many think that they are based on the 10 year Treasury Note. In fact, they are based on Mortgage Backed Securities or Mortgage Bonds. Just last week, these two indices moved in opposite directions.

2) What does it mean when the Fed changes rates? The Federal Reserve controls the ‘Fed Funds Rate’ and the ‘Discount Rate’. Since banks set Prime Rate at 3 percent above the Fed Funds Rate, Prime Rate moves in lock step with the Fed but long term mortgage rates can and often do move in opposite direction when the Fed Funds Rate adjusts.

3) Do you have access to live, real time, mortgage bond quotes? Since mortgage rates can change hourly, it is mandatory to know what the mortgage bond market is doing hourly as you are deciding when to lock in an interest rate.

4) What is the next scheduled event or news release that could influence interest rates? Mortgage rates often move in advance of expected news. For example, if last month’s PCE (Personal Consumption Index) is scheduled to come out in a few days and it is expected to be low, mortgage bonds will rally bringing downward pressure on mortgage rates. It may be wise to lock in a rate before the release of the actual PCE.

The bottom line is to be sure to select a mortgage professional that you can count on as you would your CPA or financial planner. Do not be tempted to select a loan officer or loan program based solely on the prospect of obtaining a rate or low fees that sounds too good to be true.

This column is written every Sunday by Peter Boutell, Certified Mortgage Planner and a principal at Santa Cruz Home Finance. You may reach him at (831) 425-1250 or email him at Peter@SantaCruzHomeFinance.com.