Mortgage rates moved slightly lower today after falling significantly on the Fed's policy announcement yesterday.  The drop in rates today is somewhat paradoxical in that the securities in the secondary mortgage market actually moved higher in yield.  That almost always coincides with higher mortgage rates offered by lenders, but today rates fell further, ultimately getting close to the All-Time Lows seen on July 23rd.  Best-execution for 30yr Fixed Conventional Loans is now questionable at 3.5% and in many cases, makes better sense at 3.375% or lower.

(Read More:What is A Best-Execution Mortgage Rate?)

We see today's moderate improvements more as a result of getting caught up with yesterday's colossal movements in financial markets and especially in Mortgage-Backed-Securities (or "MBS") after the Fed announced an open ended buying program of $40 bln per month in MBS markets.  Combined with the Fed's existing policy to reinvest monthly payments from its MBS holdings, the current Fed buying accounts for roughly 80 per cent of the market.  When there is an excess demand for MBS (which this creates), it has a positive impact on prices.  As prices rise, yields (or "interest rates") fall.

Unfortunately, excess demand for MBS, in and of itself, isn't sufficient to keep mortgage rates pinned to the floor if the broader bond market rates are skyrocketing.  To that end, some very serious risks are created by today's underlying movement in Treasuries.  10yr Yields for instance, saw their sharpest rise today since March 14th.  If this trend continues next week, it could begin to take a toll on mortgage rates in spite of the Fed's new buying program. 

Temporary Note On G-Fee Hikes: This is something that's happened before and is something we know will continue to happen (read more HERE), but it doesn't make the effects on rate sheets seem like any less of a shock when they arrive.  Lenders have been adjusting their pricing policies more quickly in response to this most recent hike and it has generally been enough to push most scenarios up to the next .125% higher in rate.  In our view, this is a MUCH bigger consideration than trying to time highly uncertain financial markets.  Bottom line, if you can unequivocally confirm that you're working with a lender who has not yet priced in the Guarantee Fee increase, and that your loan is on a timeline that risks being affected by it, we'd certainly favor locking in those scenarios (not to mention making sure your lender has everything they need to get your loan done without the need for a lock extension, because those are getting much more expensive in some cases if they cause the time frame on the file to cross into the higher Guarantee Fee territory).

Long Term Guidance: While the recently high degree of uncertainty remains very much intact, the Fed's decision to specifically target Mortgage-Backed-Securities in a third round of Quantitative easing provides a supportive undertone for mortgage rates.  We'd still advocate not trying to get too far ahead markets.  In other words, we wouldn't try to guess how low or how high rates might go before changing course.  For now, the trend is supportive and positive for rates, but we're watching it closely for the same sort of paradoxical responses that occurred in 2010.  Things look different this time around, but a lot of that has to do with Europe.  Rates remain near all time lows and risks of volatility remain high.  Those factors suggest that you stay vigilant regarding the day-to-day swings in mortgage rates.  If you're floating, set a limit as to how high rates would have to go before you cut your losses and locked.  Similarly, set a target of how low rates would have to get before you lock.

Loan Originator Perspectives

Bob Van Gilder, Finance One Mortgage

Mid-East turmoil, European lies and Bernanke purchasing 40b in MBS per month?? Get your paperwork in and have a great weekend!! (no urgent need to lock, unless of course you have a close of escrow date)

Mike Owens, Partner with HorizonFinancial, Inc.

Since rates are back to all time lows lock it up. I don't think anyone would have guessed the reaction to the FED news yesterday regarding the purchase of MBS. It was ultra helpful for rates. Since the G-fee had caused a little up trend, the improvement basically takes us to where we were. We had a huge rally and could give some back next week.


  • 30YR FIXED - 3.375% - 3.5%
  • FHA/VA - 3.25% - 3.5% (varies more between lenders than conventional 30yr Fixed)
  • 15 YEAR FIXED -  2.75% - 2.875%%
  • 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
  • Rates could easily move higher or lower, but given the nearness to all time lows, there's generally 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.
  • (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario.  There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).