rates were very close to unchanged today, though some lenders were in microscopically better territory than yesterday. Underlying market movements were more volatile than they have been, but ultimately settled down in agreeable territory for mortgage-backed-securities (MBS). Best-Execution for 30yr Fixed, conventional loans remains stuck between 3.625% and 3.75% with lower rates still available in exchange for increasingly steep up front costs.
(What is A Best-Execution Mortgage Rate?)
Depending on the level of attention you pay to news from financial markets, you may or may not have gotten the sense that the small Mediterranean island country of Cyprus is the center of attention this week. For the casual observer, it strains credulity to consider that Cyprus could actually be the most important factor in mortgage rates in the US. Keep in mind, this isn't necessarily because there's a direct link from the European drama to the mortgage world, but said drama does directly benefit "safe-haven" investments such as US Treasuries. MBS operate in the same quadrant of the financial galaxy as Treasuries and tend to stick to a similar orbit around whatever the center of attention happens to be.
Granted, there are plenty of other considerations and plenty of instances where MBS will not be following Treasuries in lock step, but in general, if Treasuries will only move so far before MBS start to look more attractive by comparison. In other words, uncertainty relating to Cyprus benefits Treasuries. This raises the price and lowers the yield. Investors like earning yield and MBS are a slightly more risky fixed-income investment with a slightly higher yield than a comparable duration Treasury security. At a certain point, MBS look like a good value and they, in turn, benefit from the flight-to-safety, resulting in lower mortgage rates.
This is why mortgage rates have fared better this week than last, and ongoing drama in Europe can continue to have this sort of indirect effect on interest rates on the other side of the world. The flipside of the coin is that if Cyprus and it's EU creditors happen to make more progress by Monday than markets are expecting, some of that safe-haven demand could begin drying up, pushing rates higher as a result. There's no way to know how soon any major impacts will occur, but as of now, Cyprus is slated to re-open their banks on Tuesday and must have worked out a bailout with the EU by Monday. Progress towards both of those goals is questionable for now, but if that changes, so will mortgage rates.
Loan Originator Perspectives
"Rates ended this week even as MBS markets digested two offsetting doses of macro uncertainty. Rates fell early and late-week as investors sought the safety of mortgage bonds because a banking crisis in Cyprus rekindled fears of debt contagion in the eurozone. But rates rose sharply mid-week as mortgage bonds sold because Fed chairman Bernanke gave subtle signals about the Fed eventually easing the pace of their mortgage bond buying activities (which is quantitative easing designed to keep rates low). The former might outweigh the latter to begin next week, so there could be good rate locking opportunities for home shoppers who get into contract this weekend, and for refinance shoppers who have provided all of their materials to their lenders and are ready to go." -Julian Hebron, Branch Manager RPM Mortgage.
Banking drama in Europe continues to influence MBS prices in US today. As we anticipated yesterday, rates slightly better as ECB struggles with Cypriot banking crisis. The more global uncertainty, the better for US rate outlook. It's unlikely we'll return to last fall's pricing levels, but still nice to gain back some of the ground we lost since then!" -Ted Rood, Senior Originator, Wintrust Mortgage.
Today's Best-Execution Rates
- 30YR FIXED - 3.75%, 3.625% coming back into view
- FHA/VA - 3.375-3.5% (varies more between lenders than conventional 30yr
- 15 YEAR FIXED - 3.00%, 2.875% coming back into view.
- 5 YEAR ARMS - 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates have risen moderately but consistently since hitting their all-time lows in September and October 2012.
- Regardless of global or domestic economic weakness, the subsiding fear of a disorderly EU breakup will continue to prevent rates from getting back to those lows.
- This is very likely to be the case unless a similarly panic-inducing event were to come into focus, or if a disorderly break-up regained the spotlight.
- Sequestration, negative growth, and generally choppy political and economic environments around the world DO NOT constitute that sort of panic.
- This is a "rising rate environment" until further notice, though pockets of recovery and consolidation can provide smaller-scale opportunities against the larger-scale backdrop.
- (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).