Mortgage rates took a beating last week. Even the most aggressive lenders are now creeping towards 5.00% (for WELL-QUALIFIED borrowers).

During the course of the holiday shortened work week, benchmark Treasury note yields rose persistently which lead mortgage backed security prices lower and forced lenders to offer even higher mortgage rates. I say "even higher" as a reminder of something that AQ has been writing all over Mortgage News Daily lately. Here is an excerpt from his commentary last Monday:

From a loan pricing standpoint. I recall this time of year as being one of my favorite for determining rate sheet rebate. I viewed it as so...

Most borrowers have already locked in  and many have actually already closed. Who wants to deal with a loan closing at this time of year?  My main goal was to limit the amount of work I had to do over the next 10 days. I made sure all my positions were square, I double checked pricing, hounded post closing to get my files shipped, and started working on monthly P&Ls. My eyes were generally off the market as my mindset was " GET WORK DONE, LEAVE THE OFFICE ASAP". Processors, UWs, Closers, Shippers, and Accounting were all in the same boat. (Compliance always cared)

This was not an originator friendly environment. To avoid extra work and disruption...I always baked a few extra bps into my rates. My innate sense of capitalism took over. This sentiment was shared up and down the mortgage pricing supply chain. Not matter how the market was moving....primary/secondary market pricing spreads were getting wider.

Plain and Simple: Don't be surprised or angry if rate sheets start to get more expensive...regardless of how the market behaves.

This means lenders are not determining mortgage rates under normal circumstances. There is a seasonal dynamic influencing consumer borrowing costs...holidays!

So even if the bond market were to make it possible for mortgage rates to tick lower, lenders would likely still hold back a portion gains until decision makers return in the new year. I don't want to paint a picture that implies the week ahead is meaningless though, there are a few events that may provide a few more hints about the direction mortgage rates head in 2010.

The Treasury Department will auction $118billion in U.S. debt, with the first auction results to be released at 1pm today, then 5yr Treasury notes tomorrow at 1pm followed by 7 yr note results at 1pm on Wednesday.  

As always with Treasury auctions, supply is known in advance so market participants look at the demand for our nation’s debt to gauge its success or failure.  Despite record amount of U.S. borrowing, demand for our nation’s debt has been quite strong all year, especially from foreign central banks,  which has helped keep mortgage rates near historic low levels. If mortgage rates are to stop rising, we need foreign central bankers, China and Japan specifically, to continue providing support heading into 2010.

In terms of economic data, the rest of the week is pretty quiet.

Tomorrow we get a reading on the housing sector with S&P Case Shiller Home Price Index. This data tracks the monthly changes in the value of residential real estate in 20 metropolitan regions across the United States.   Rising home values encourage new construction which creates jobs and increases consumer spending.  Declining home values encourage consumers to save and not spend as they attempt to offset the loss of equity by boosting personal savings and paying off debt.   We also get a reading on how consumers are feeling on Tuesday...the Consumer Confidence Report. Jobless Claims comes out on Wednesday.

The bond market closes at 2pm on is closed on Friday.  READ MORE on the week ahead.

Reports from fellow mortgage professionals indicate the par 30 year conventional rate mortgage has risen to the 5.00% to 5.25% 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.  You may elect to pay less in fees but you will have to accept a higher interest rate.  This is a good strategy for consumers not planning on keeping their home for more than 3 years.  Even if you plan to sell in the next 12 to 24 months, you should look into a refinance where you pay no closing costs.  The rate will be about 1% higher than par but if you can do a no cost to you loan and lower your mortgage rate by even a .25% why not do it?   As always, consult with a mortgage professional who can give you multiple options and help you pick the most ideal scenario for you and your family. 

The economic outlook is extremely uncertain. The bond market reflects a bias towards higher rates in early 2010. If you are looking for FLOAT/LOCK advice READ MND'S MORTGAGE RATES OUTLOOK.