rates moved higher at a quicker pace today despite the fact that US Treasury yields were unchanged to slightly improved. In some cases, Best-Execution moves up from 3.25% to 3.375% but most borrowers will see today's change in the form of increased COSTS as opposed to increased rates themselves.
More:What is A Best-Execution Mortgage Rate?)
We've discussed the relationship between Treasuries and mortgage rates in the past, albeit in a different context, HERE. To summarize, although mortgage rates and Treasuries DO tend to move in the same direction most of the time, there's no rule or structural relationship that guarantees it. For the same reason they can move in opposite directions, we can also conclude and observe that they frequently move in the same direction, but at different paces.
One of those two scenarios have been in play for several weeks, where mortgage rates are simply losing more or gaining less than Treasury yields. In other words, the mortgages haven't been doing so well. There are several potential reasons for this, but no way to say for sure. The more complex reasons have to do with the way investors determine the value of the mortgage-backed-securities (MBS) that groups of individual mortgages eventually turn into. There's speculation that if Obama replaces the current head of the FHFA, that the new director would be more aggressive policies to help stimulate the housing market. That may well be a good thing for the housing market, but the downside is that is decreases the value of those mortgage-backed-securities in the eyes of investors, and all things being equal, that has an upward pressure on rates.
This is just one part of a multi-faceted discussion, however, and one that's largely beyond the scope of an interest rate recap. On the less complex end of the spectrum, we could simply be seeing mortgage markets seek some sort of balance in their relationship to other interest rates following the mid-September QE3 announcement (which really shook things up).
Loan Originator Perspectives
"We're locking clients today to avoid higher rate risk as mortgage bonds
(MBS) can't seem to break above current levels---rates drop when MBS
prices rise and vice versa. This lack of MBS investor enthusiasm is
influenced partly by prepayment risk in the lower coupons that lenders
use as benchmarks to price rate sheets, and partly by optimism (albeit
cautious) about a possible U.S. fiscal compromise. For now, the risk of a
break higher in rates is outweighing the possibility of yet another MBS
rally to drive rates down." -Julian Hebron, Branch Manager, RPM Mortgage.
"Do yourself a favor, Lock your rate in. Not much room on Lender's rate
sheets for improvement in near term I fear. (They are swamped---why
lower price when demand is so high?)" -Bob Van Gilder (BVG) Finance One Mortgage.
"Markets are rightly focused on the fiscal cliff debacle/debate. Rates
lost a little pricing overnight, more on the lender paid closing cost
side than on actual rates. I've still got plenty of room to pay most or
all my clients' closing costs, but am glad I locked my new applications
yesterday rather than risking great pricing for the promise of slightly
greater pricing!" -Ted Rood, Senior Originator, Wintrust Mortgage.
"I believe locking your rate is the smart thing to do. Rates are great
and you have more to lose by floating than by locking and being done
with the worry. Rates shoot up quickly but drift down slowly. Ask
your loan officer to give you a couple options and if you can live the
worst case, then lock it and be done." -Mike Owens, Partner with Horizon Financial, Inc..
Today's Best-Execution Rates
- 30YR FIXED -3.375%
- FHA/VA - 3.25% (varies more between lenders than conventional 30yr
- 15 YEAR FIXED - 2.875% - 2.75%
- 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
- This 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
- (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).