Yesterday, mortgage backed securities went on quite a rally improving right at 100 basis points. On a day like that you would normally see many reprices from lenders lowering their rates, but we saw very few and some lenders even repriced for the worse. Many people are asking why lenders are not passing along lower rates yet, since the price of mbs support much lower mortgage rates. Well, it simply comes down to lenders are so swamped with business they can’t handle it all. So, they are not passing even lower rates to consumers in a way to slow down submissions. Lenders pipelines are full and flowing over and over the last year and half they have cut back on staff. It will take time for lenders to fill positions and I imagine that lenders are calling old employees, putting ads in papers to hire more staff but it will take some time.
We did get the release of one economic report called the ADP Employment numbers. This report has historically been off when compared to official numbers that we get on Friday. The report this morning though was not pretty; it showed a loss of 693,000 jobs from last month. The expectation for Friday’s official number is a loss of 550,000. This report has had no effect on mbs this morning but the report on Friday will move the markets, but the jobs numbers are not looking to good. This is a positive for mbs as higher unemployment keeps wage based inflation in check. What that means is employers do not have to attract new employees with higher pay. Since unemployment is high, they can attract new employees by just offering a job even at lower pay. As a job with lower pay is better then no job at all.
As far as locking a loan. My recommendation is to float your rate up to closing, so if you are looking to close in the short term, meaning less then a few days, locking would make sense. If you are closing more then a week from today, then floating is the way to go. Keep in mind though, it is always better to lock when you should have floated then it is to float when you should have locked. We are in strange times but lower rates are ahead, just not sure when we will see them. We need to allow time for lenders to staff up to handle the huge volume they are seeing. If you are happy with the rate you have been quoted, lock and move on. Especially if you have a sub 5% interest rate. I do believe we will see rates on 30 year mortgages in the low 4% range, but if you currently have a 6% rate, and you can lock now at 4.75% take your gains and run and that way you take all risk out of the equation. We should see lenders rate sheets all over the place this morning, with lenders that need more loans offering lower rates and lenders that are swamped with loans being more conservative.
As I have been typing this update, mbs have started to sell off some. This is to be expected after the huge rally we had yesterday. This helps confirm that short termers should lock, but if closing more then a week or so, floating looks like the way to go. As always, take your risk tolerance into account.