Locking Higher Loan Amounts. Cautiously Floating Less Sensitive Files
Despite benchmark Treasury rates moving higher last week, prices of mortgage-backed securities managed to hold their ground, allowing mortgage rates to maintain status quo in their recent range. To remind readers, as prices of mortgage-backed securities move higher, lenders are able to pass along lower mortgage rates. After the FOMC meeting and the Jobs market report, which indicated the unemployment rate broke the double digit barrier, mortgage rates were marginally improved last week.
On Friday, President Obama signed an extension of the $8000 First Time Home Buyer tax credit through April 30th of 2010. The tax credit is also being offered to homeowners who have lived in their current home for at least five years and are seeking to relocate giving them up to a $6500 credit. The income limits have also been increased from $75,000 for a single person to $125,000 and from $125,000 to $225,000 for a married couple. To learn more about this, read the MND STORY.
The week ahead is very light on economic data. Of most significance to mortgage rates will be the Treasury auctions. Today at 1pm eastern, the U.S. Department of Treasury will auction $40 billion 3 year notes, followed by $25 billion in 10 year notes on Tuesday, and $16 billion 30 year bonds on Thursday. As always , Treasury auctions, the added supply of debt on the markets will pressure treasuries lower in price, higher in yield to attract buyers. Recently the market has reacted more to the announcement of the auction than to the actual auctions themselves. Traders call this building a 'concession'. Strong demand for these auctions will help mortgage rates remain the in their recent range. The auctions take place at 1pm on the above listed days. Matt and AQ will cover the results on the MBS Commentary blog.
The fixed income markets will be closed on Wednesday in honor of Veteran's Day. On Thursday we get the weekly jobless numbers followed up with Consumer Sentiment on Friday. Additionally, we have a few speeches this week from various Fed officials. Anytime Fed officials speak, market participants pay attention for any hint of future monetary policy and their outlook on the economy.
For more on the week ahead, check out the MND STORY.
Reports from fellow mortgage professionals indicate pricing for par 30 year conventional rate mortgage is marginally improved, but holding in the 4.75% to 5.00% range for well qualified consumers. To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.
I have been using a well defined trading range to gauge my lock/float recommendations. The idea is to lock at the price highs and float at the price lows. On Friday I recommended floating through the weekend, this strategy worked out well as mortgage rates are modestly improved (not big improvements) today. Considering that MBS are holding near the top side of the trading range and as AQ and MG put it, there isn't much room for MBS prices to continue to improve, I have advised a few of my higher loan amount clients to lock in their loans.
Remember higher loan amounts have larger loan payments and are more sensitive to changes in the interest rate environment.
In the same context of MBS prices "not having much room to rally on", Treasury rates do not have much room to run higher...that said, if your loan is below 200,000 I would advise cautious floating. It is a very light week for economic reports and if history holds steady, the recent rise in Treasury yields will serve to draw added demand at this week's auctions, which could help push MBS prices through the top of the price range. If you elect to float your rate, make sure you check in with the MBS Commentary blog as Matt and AQ will alert you if the market changes for the worse.