This is universal information for all mortgage loans. Your lender doesn't actually set your rate. It sets the total pricing of your loan, but not the basic rate. The rates are actually set in the secondary market.

Fannie Mae, Freddie Mac, and other investors buy loans made by your lender and others, and they hold them in their own portfolio or create securities that reflect those holdings that are sold to Wall Street, mutual funds, and other big investors. This process is much the same as what happens with Treasury securities, which also carry a market rate.

The mortgage securities market keeps funding flowing through the system in healthy times. But in August and September 2007, the Federal Reserve was pumping money into the system as subprime lenders started to fail around the country and mortgage loans began to dry up for many Americans. By mid-September, the Fed got out the big gun — it cut the fed-eral funds rate by a full half-percent, and at this writing, pundits were saying the mortgage credit crisis was over. Or was it?

When you apply for a loan, your lender looks over your assets and liabilities, what you're willing to offer as a down payment, and your credit record, and then decides what rate you will qualify for and what fees you will pay. There's no such thing as a pure interest-rate deal. Like any retailer, lenders mark up what they're paying for the loan with various fees and adjustments in rates so they make money. (For a review of lenders' loan costs, refer to Chapter 8.)

Since rates are tied to the market and computers are ubiquitous in the lending industry, you will not be quoted a rate that was set for the week or even for the day. You may be quoted a rate that resets several times a day based on the volatility in that market. It's all up to the lender.

This is the primary reason that rates you see in the newspaper and even on mortgage Web sites shouldn't be taken as gospel. Not only do the rates change throughout the course of the day, but borrowers need to look at the total cost of the loan, and the rate is only one part of that.