Mortgage Rates Return To Historic Lows Following FOMC Announcement

Mortgages Rates spent 2 days at 4.0% in terms of rounded average “Best-Execution” rates (for detail on what that means, READ THIS POST from a few days ago).  Today, that rounded average has returned to 3.875%.  Although the underlying average isn’t as low as it’s ever been (3.88 vs 3.82), lenders tend to price loans in 1/8th (.125%) increments, meaning that 3.875% has been the lowest sustainable best-execution rate.  In short, we’re back to the promised land. 

The improvements came on the heels of today’s FOMC Announcement (Federal Open Market Committee or simply “The Fed”) which surprised some market participants with it’s inclusion of new verbiage describing how long the Fed anticipated that it would keep its “Fed Funds Rate” at so-called “exceptionally low levels.”  Until today, this verbiage read “through mid-2013,” but is now changed to “through late-2014.”  Markets weren’t necessarily expecting the inclusion of the word “late,” and although mortgage rates would have likely improved with a simple mention of 2014, the “late” part added fuel to that fire.  

While this indeed breaks the sideways trend at higher rates over the past 2 days, it’s up to the rest of the week to solidify the rebound.  In essence, markets will have an opportunity to respond to the eternal question: “is that your final answer.”  While the data through the end of the week doesn’t possess the gravity of today’s FOMC announcement, it could be enough to nudge the Best-Execution rate back to 4.0% depending on how it’s received.  In that sense, the risk posed by one singular event today is replaced by the risk posed by a group of events tomorrow and Friday.  3.875% is just barely back in the picture today, but it’s too soon to say whether or not the past two days at 4.0% were the exception to a long-term trend, or the beginning of a new one. 

Today’s BEST-EXECUTION Rates

  • 30YR FIXED –  3.875% mostly, with a few lenders at 4.0% still
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.375% and more 3.25’s
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Rates and costs continue to operate near all time best levels
  • Current levels have experienced increasing resistance in improving much from here
  • There are technical reasons for that as well as fundamental reasons
  • Lenders tend to get busier when rates are in this “high 3’s” level
    and can throttle their inbound volume by raising rates or costs.
  • While we don’t necessarily think rates are destined to go higher,
    given the above facts, there seems to be more risk than reward regarding
    floating
  • But that will always be the case when rates
    operating near historic lows

…(read more)

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Mortgage Rates Sideways Ahead of Wednesdays Important Events

Mortgages Rates are steady to slightly improved today after rising for the first time in a month yesterday.  Although rates change slightly every day, those changes are usually small enough as to only effect the closing costs associated with a particular rate.  Because of this, we track “Best-Execution” as the actual interest rate benchmark, and we talked about it in significant detail yesterday (READ MORE).  So although we are able to report that the rate environment is slightly improved today, those improvements have been mostly relegated to minor decreases in borrowing costs for what will likely be the same rate you would have been quoted yesterday. 

Underlying markets have been fairly equivocal for the past two days with a majority of the damage to mortgage rates having occurred with last week’s market movements that lenders more fully priced into rate sheets yesterday.  Stocks, Bonds, and MBS (the “mortgage-backed-securities” that most directly influence mortgage rates) are all very close to where they were last night, seemingly in preparation and anticipation of several important events tomorrow. These include the FOMC Statement (Fed “rate decision,” although it’s the text of the announcement that is important as no change is expected to the discount rate), the first-ever release of FOMC members forecasts, a post-announcement press conference from Ben Bernanke, as well as the 5yr Treasury Note auction. 

Tomorrow’s events, taken in conjunction with tonight’s State of The Union address presents quite a bit for mortgage markets to digest.  The speech tonight may contain mention of new housing-related initiatives (some have suggested), and similar suggestions have been made about tomorrow’s FOMC Announcement (which would be a MUCH bigger deal as far as influencing mortgage markets).  Conversely, it’s possible that some recent levity for MBS vs Treasuries is due to the EXPECTATION that the Fed will add some extra MBS-Specific quantitative easing in the near future, meaning that rates could face some added pressure if MBS are NOT specifically mentioned, although that’s not likely to cause sufficient movement tomorrow for Best-Execution to rise.  Whatever happens tomorrow, it’s a high-risk set of events that could push rates higher OR lower, but we’ll hopefully come away from it with a clearer sense of whether or not rates will make it back down to a 3.875% Best-Execution any time soon.

Today’s BEST-EXECUTION Rates

  • 30YR FIXED –  4.0%, 3.875% still a contender
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.375%
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Rates and costs continue to operate near all time best levels
  • Current levels have experienced increasing resistance in improving much from here
  • There are technical reasons for that as well as fundamental reasons
  • Lenders tend to get busier when rates are in this “high 3’s” level
    and can throttle their inbound volume by raising rates or costs.
  • While we don’t necessarily think rates are destined to go higher,
    given the above facts, there seems to be more risk than reward regarding
    floating
  • But that will always be the case when rates
    operating near historic lows

…(read more)

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Best-Execution Mortgage Rates Rise After Extended Period of Stability

For the first time in over a month, the Best-Execution rate for 30yr fixed mortgages rose from a rounded average of 3.875% to 4.00% today.  The underlying borrowing costs associated with 3.875% didn’t rise by a significantly painful amount, but the small increases across the board, combined with one huge move by a huge lender, was enough to bring the average rate closer to 4.0% than 3.875%.   

You may well wonder what the heck this all means.  So we’ll go into more detail tonight for enquiring minds.  Our methodology for determining daily Mortgage Rates
is somewhat complex, and involves an objective component based on lenders raw prices as well as subjective impression from our network of originators.  We look at the rate sheet offerings from most major lenders and calculate the buy-ups and buy-downs between each rate (incidentally, rates tend to be offered in .125% increments, which is why we’re always conveying best-execution in .125% increments whereas the actual daily average is reflected on the Mortgage Rates page). 

Sometimes, the “sweet-spot” is obvious from looking at lenders raw pricing.  For example, For each .125% lower in rate, you’d have to pay more and more in terms of closing costs (which could be referred to as “discount” or “origination” or “points” among other things, but I’d greatly like to stay out of semantics debate and instead focus on the spirit of the matter.  Bottom line: it costs more money up front to pay a lower rate over time, whatever a lender wants to call that fee).  If it cost 0.4% of the loan amount to move down from 4.125% to 4.0%, another 0.5% to move to 3.875%, but a whopping 1.2% to move to 3.75%, it’s clear that this lender’s Best-Execution is at least 3.875%.  In some cases, some clients may opt to pay big buydowns if they understand the longer time it will take to breakeven on the extra upfront expense in terms of monthly payment savings from an .125% lower rate. 

Other times, the gaps between rates are fairly close together for several rates near Best-Execution.  This makes the process of deciding that lender’s Best-Ex rate much more subjective.  In these cases, we assume scenarios with the best combination of lowest closing costs but not at the expense of monthly interest savings that could be recouped in less than 5 years.  This almost always means a loan with no origination fee.  But when the range of options are similarly viable, we involve the community to get a consensus not only of what they’re quoting, but also which options their clients are choosing.  This is combined with the objective measurements taken from lenders, and each lender’s best-ex rate goes into calculating the average.

All that to say that this average moved up from 3.92% to 3.98% today.  3.92 rounds down to the closest eighth whereas 3.98 rounds up, thus, the 4.0% Best-Execution today.  But keep in mind that 3.875% is still very much “out there,” meaning, deals can be viably structured with 3.875% rates just as easily today as they could have been on Friday, as long as you can afford the increased closing costs.  Also keep in mind that different lenders are continuing to price in the effects of the Tax-Cut-Extension at different times and in different ways.  One large lender priced it in with today’s rates and the difference in closing costs would be substantial if you didn’t know where they were coming from.  But the tax cut extension calls for a 10bps increase to a fee that lenders have to pay the government on each loan.  That 10bps fee is like 0.1% interest rate increase, almost as much as the .125% increments we just discussed!  So just like moving up and down by .125% increments in rate affected the costs by .4, .5 and even 1.2% of the loan amount, you can see how a difference of 0.1% being priced in overnight could have a drastic effect on closing costs on a particular loan depending on the lender and the initial rate.

Today’s BEST-EXECUTION Rates

  • 30YR FIXED –  4.0%, 3.875% still a contender
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.375%
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Rates and costs continue to operate near all time best levels
  • Current levels have experienced increasing resistance in improving much from here
  • There are technical reasons for that as well as fundamental reasons
  • Lenders tend to get busier when rates are in this “high 3’s” level
    and can throttle their inbound volume by raising rates or costs.
  • While we don’t necessarily think rates are destined to go higher,
    given the above facts, there seems to be more risk than reward regarding
    floating
  • But that will always be the case when rates
    oper

…(read more)

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Market Weakness Threatens All-Time Low Mortgage Rates

Mortgage Rates worsened at a reasonably brisk pace today when compared with recent relative stability.  Still, the movement remains confined to costs associated with as yet, unchanged Best-Execution Rates.  That means that 3.875% is still the average “best-case-scenario and best bang-for-the-buck” rate among most lenders rounded to the nearest eighth.  3.75% had been increasingly attractive last week, but has all but faded from view after lenders released rates weaker this morning.  Several lenders recalled those rates, raising costs as bond markets suffered.

Over the past few days, we’ve included the following in our analysis:

Rates are as low as they’ve ever been.  How long will
this continue?  There’s no way to know for sure, but we generally
advocate a conservative approach with rates at all time lows. 
“Conservative” in this sense simply means that history has shown us how
quickly record-low rates can disappear.  While we certainly wouldn’t
rule out the possibility that rates can improve, we’ve already been
experiencing the fact that further gains are hard-fought and take more
time than gains seen in the middle of the range. 

If you happened to read that, taken in conjunction with several days of weakness, you may be wondering if these are the days that mark the turning point away from all time low rates.  The great thing about such a concern is this: rates are still at all time lows!  If you’re worried that current weakness could mark the turning point, the sacrifice of slightly higher closing costs vs yesterday seems minimal compared to the loss of the opportunity altogether. 

If losing the opportunity doesn’t bother you much, just be sure to clearly define an acceptable level of loss from current rates.  Set yourself a “stop,” of sorts, by deciding on a rate slightly
higher than what you’re currently being quoted, at which you’d lock at a
loss if the market moves against you.  Locking in such a scenario can
prove exceedingly frustrating more often than not as the higher
probability eventuality has been for rates to return lower, but this
pales in comparison to the potential frustration of rates NOT returning
lower.

Today’s BEST-EXECUTION Rates

  • 30YR FIXED –  3.875%, 3.75% as close as it’s been
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.375% / 3.25%
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Rates and costs continue to operate near all time best levels
  • Current levels have experienced increasing resistance in improving much from here
  • There are technical reasons for that as well as fundamental reasons
  • Lenders tend to get busier when rates are in this “high 3’s” level
    and can throttle their inbound volume by raising rates or costs.
  • While we don’t necessarily think rates are destined to go higher,
    given the above facts, there seems to be more risk than reward regarding
    floating
  • But that will always be the case when rates
    operate near all-time levels, and as 2011 showed us, it doesn’t always
    mean they’re done improving.

…(read more)

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Mortgage Rates Steady While Borrowing Costs Rise Slightly

Mortgage Rates
continue to ebb and flow in the same pattern that has persisted for over a month.  The average Best-Execution interest rate for a 30yr fixed loan has remained at 3.875% during that time and the closing costs associated withtthat rate have been gently rising and falling, with increasing regularity.  We’ve rarely strung together 3 days in a row with movements in the same direction (i.e. borrowing costs rise very slightly 3 days in a row, while Best-Ex stays at 3.875%), and the actual difference in those costs day over day continues to be fairly minimal.

Those borrowing costs rose very slightly today, a reasonable conclusion to the previous two sessions offering all time low rate/fee combinations.  This means that whereas 3.75% was “as close as it’s ever been to sharing equal recognition with 3.875% as a viable choice for Best-Execution,” that’s no longer the case today, but it should be noted that the buydown schedule (amount of additional closing costs required to move down in rate) at some lenders allows for scenarios with even lower rates to make sense depending on your preferences and qualifications.

If you didn’t catch Friday’s Article, which
went into a bit more detail on how we determine “Best-Execution,” it’s
worth a read.  But the bottom line is really this: regardless of the
actual interest rate levels, there’s no other way to say the following: rates are as low as they’ve ever been.  How long will
this continue?  There’s no way to know for sure, but we generally
advocate a conservative approach with rates at all time lows. 
“Conservative” in this sense simply means that history has shown us how
quickly record-low rates can disappear.  While we certainly wouldn’t
rule out the possibility that rates can improve, we’ve already been
experiencing the fact that further gains are hard-fought and take more
time than gains seen in the middle of the range. 

Whatever your disposition toward locking vs floating, it makes sense
to set yourself a “stop,” of sorts, by deciding on a rate slightly
higher than what you’re currently being quoted, at which you’d lock at a
loss if the market moves against you.  Locking in such a scenario can
prove exceedingly frustrating more often than not as the higher
probability eventuality has been for rates to return lower, but this
pales in comparison to the potential frustration of rates NOT returning
lower.

Today’s BEST-EXECUTION Rates

  • 30YR FIXED –  3.875%, 3.75% as close as it’s been
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.375% / 3.25%
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Rates and costs continue to operate near all time best levels
  • Current levels have experienced increasing resistance in improving much from here
  • There are technical reasons for that as well as fundamental reasons
  • Lenders tend to get busier when rates are in this “high 3’s” level
    and can throttle their inbound volume by raising rates or costs.
  • While we don’t necessarily think rates are destined to go higher,
    given the above facts, there seems to be more risk than reward regarding
    floating
  • But that will always be the case when rates
    operate near all-time levels, and as 2011 showed us, it doesn’t always
    mean they’re done improving.

…(read more)

Forward this article via email:  Send a copy of this story to someone you know that may want to read it.