Yesterday was a tough day for mortgage backed securities (MBS) but even tougher on Treasuries. If you would like to see a graph of the carnage, Click here. All lenders did reprice for the worse, with some increasing borrowing costs by .50 in discount. That means if a particular interest rate was costing 1 point in the morning, by day’s end it was costing 1.5 points. I do hope that short termers, consumers closing in the next 2 weeks, took our advice on locking. It appears the reason for the selloff in treasuries is 2 fold. First, investors are anticipating a massive supply of more treasuries which when you apply the law of supply and demand, more supply drives price lower which raises the yield. Also, there was a report that the US might lose its AAA credit rating due to the massive amount of government spending that will have to be funded by issuing treasuries. Just like in your own personal finances, if you do not have the money to pay for something you have to borrow. Well, when the government does not have money, they sell treasuries.
Even though it was a rough day yesterday, we must also recognize that we are heading into a holiday 3 day weekend and many people are even taking today off. With that said, many investors wanted to move their positions to cash ahead of the lengthy weekend. Not too often does the stock market sell off over 100 points, treasuries move lower in price by close to 2 points and MBS move lower by a half a point. Today’s trading will be very light volume as most investors are already on their vacation
There are no economic reports being released today and the markets will close at 2pm eastern and not reopen until Tuesday. If you did not lock your loan yesterday, you do not need to panic at this point. A very consistent pattern that has developed over the last few months appears to be playing out again. Mortgage rates have moved to a par rate of 4.5%, stayed there for a day or 2, but then started to move higher. Once mortgage rates move higher by about a .25 in rate, they then turn around and start moving lower again. We quite often refer to this as range bound. The range is a low rate of 4.5% and the high is a rate of 4.75%. If you have been sitting on the sidelines cause you heard on the news or around the water cooler that rates are going lower, you might want to reconsider. We have been range bound for quite some time and you need to recognize at one point that will change and we will break out of that range. With where mortgage rates are today, what do you feel is more likely to happen? Break out to the top side(higher rates) or the low side? Much more room for the top side break out.
Early reports from fellow mortgage professionals are indicating the par 30 year fixed rate mortgage are .125% higher today at 4.625%. In order to qualify, you must have a FICO credit score 740 or higher, a loan to value 80% or less and be willing to pay all closing costs including 1 point loan origination/discount/broker fee. As a consumer, you can elect to pay less closing costs, but you will have a higher interest rate. Any consumer planning on staying in their home for at least 3 years should consider paying all costs including a point. Consumers who will be in the home for less time, should consider paying less fees and take a higher rate. Your mortgage professional should be able to provide you a break even analysis to help you determine which is best for your family. One thing is for certain, whether you pay closing costs or not, you will end up paying them. You either pay them as the fees associated with your mortgage, or you pay them in the form of a higher interest rate. If you are keeping the home for many years, the higher interest rate will cost you much more than paying the fees up front.
My next blog will come to you on Tuesday. I wish everyone a safe 3 day weekend and also hope everyone recognizes the reason we have this holiday weekend. I personally want to thank any reader who has, or is currently serving our country. Many citizens and families have sacrificed a lot for the freedoms we have and will continue to have living in the best country to ever exist. In your travels this weekend, if you see a member of our armed forces, past or present, make sure you thank them as they have and are willing to give their life for the freedoms we enjoy.