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I've been asked by several people watching mortgage rates on some websites, why it appears that fees are increasing and if it has reciprocal relationship to the lower rates being offered?  My short answer is kind of, sort of.  The following is what I've surmised watching the markets and in dealing with end lenders. 

Currently, mortgage backed securities (MBS), which are the fixed income vehicles that long term mortgage rates are tied to, are trading at historically high levels (this is generally good for mortgage rates) because the Fed is infusing that market with billions of dollars. As a consequence, mortgage rates have been trending down, and in terms of a baseline rate we’re seeing rates in the mid to high 4’s (truly historically low levels).

Now, usually lenders practice rebating (or what's called yield spread premium)to encourage originators, whether internal, correspondent or through third party (TPO), to sell higher rates, which allows lenders to make more money over the long term.  In general, brokers derive their revenues from these rebates rather than collecting fees directly from borrowers, which many borrowers are loathe to pay.

However, because lenders are essentially beyond capacity right now (many are taking as long as 45-60 days to underwrite loans), they are not incentivizing rates to encourage originations.  Mortgage applications are at a 4 year high, which lenders operationally can’t handle anyway, so why would they need to provide rebate to originators.  Basic supply and demand, though, done in context of an underlying mortgage securities market that buys and sells these end loans.  So even though the available rates are at historic lows (again, mid to high 4’s), lenders are not providing the rebates that originators rely on to make a living.  Consequently, originators are passing more of the cost of closing loans to the borrowers themselves.

Until lenders can improve operational efficiencies and can close loans in a more timely manner (10-15 days), we’re not going to see the low rates AND low fees, which the general public is more used to.  Even with higher note rates, lenders are still not offering rebates, which again is clearly an indicator of something operational rather than as a result of the fixed income markets. 

It will probably take another few months for lenders to re-staff to optimum capacity, meanwhile the Fed may begin ratcheting down its MBS manipulation and we will eventually see rates begin to climb back up, though, with more rebates.