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Mortgage rates capped off a great week in sour fashion last Friday. After four days of stock selling induced rate rallying, lenders were finally forced to reprice for the worse on Friday. While mortgage rates did rise more than they have on average, the best 30 year conventional fixed loan rate was still seen near the best levels of the year. The week ahead offers and entire menu of mortgage rate influential events including two gauges of consumer spending and sentiment, three Treasury debt auctions, and a full foursome of housing releases. On top of that we will contend with investor sentiment surrounding the ongoing European debt crisis (contagion), hopefully the Federal Reserve will use one it's scheduled speech events as an opportunity to calm the concerns in the market ...

Benchmark interest rates started rising early in the trading session, before MBS trading officially opened at 8am. Positive Durable Goods Orders data added weakness. Then poor demand at the five year Treasury note auction intensified bond market selling. After that, buyers basically gave up which pushed yields higher and higher. Over the course of the day, the 10 year Treasury note yield rose 16 basis points, MBS prices plummeted on more than one occasion and lenders were forced to reprice for the worse, more than one time! Reports from fellow mortgage professionals indicate lender rate sheets to be much worse today. ...

I have been saying all year that mortgage rates will need some sort of major shift in economic outlooks if they are to fall below 4.75% again. A surprise announcement from the Fed that extended the MBS purchase program would help to, but we find this highly unlikely at the moment. This is our long term outlook. In the short term, if you are being offered 4.75% costing 1 discount point, I would lock. If your rate moved lower by another 0.125% today (in rate, not points), I would consider locking too. If your mortgage rate did not move lower today or yesterday, it is worth it for you to float overnight again. ...

Following the seemingly bottomless rates selloff that occurred on Monday, benchmark Treasury and MBS prices underwent a corrective rally yesterday. Buying beget more buying and before we knew it, the 10yr Treasury note yield was back under 3.50%, helping MBS prices move considerably higher. A strong auction of $44 billion 2 year Treasury notes helped add momentum to the rally as well. MBS prices held into the close which allowed many lenders to republish rate sheets for the better, lowering consumer borrowing costs. Again, MBS have moved back into the well defined range which we have used as a gauge of lock/float strategies. To remind readers, since MBS prices began trading in a range, borrowers have had great success floating when MBS prices were at the low side of the range and locking when MBS were at the high side of the range. The last couple days, MBS have been testing the low end of the range, thus my recommendation for floating. With yesterday’s rally, MBS have moved comfortably into the middle of the range and mortgage rates are lower. ...