It was an exciting day in the bond market.
Early in the trading session, the environment looked unfriendly for mortgage rates. Stocks were rallying and the first round of rate sheets released by lenders were worse than yesterday's. But then the tide turned after a rush of economic data and headline news events flashed at 10:00am. Stocks soon lost steam and the major indexes fell. This helped mortgage rates benefit from another investor "flight to safety" into the bond market. and gave lenders a chance to reprice for the better, which wiped out early morning losses and left loan pricing basically unchanged vs. quotes yesterday. Best Execution didn't budge and in most cases, closing costs didn't either.
A "flight to safety" happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate their money into risk-free government guaranteed U.S Treasury debt to provide a safe-haven AND an investment return. As benchmark Treasury yields fall on "flight to safety" buyer demand, prices of mortgage-backed securities move higher in unison. This allows lenders to reprice their rate sheets for the better and gives originators an opportunity to offer fence-sitting borrowers lower mortgage rates or more competitive closing costs.
CURRENT MARKET: The "Best Execution" conventional 30 year fixed mortgage rate is 4.875%. For those looking to buy down their rate to 4.75%, this quote carries higher closing costs. The upfront cost of permanently buying down your rate to 4.75% is not worth it to many applicants. We would generally only advise the permanent floatdown if you plan to hold your new mortgage for longer than the next 10 years. Ask your loan officer to run a breakeven analysis on any origination points they might require to cover permanent float down fees. On FHA/VA 30 year fixed "Best Execution" is still 4.75%. 15 year fixed conventional loans are best priced between 4.125% and 4.25%, but 4.25% is more efficient in terms of the floatdown breakeven cost. Five year ARMS are best priced at 3.625%.
PREVIOUS GUIDANCE: If we had been "in limbo" about
extending the recent rally at the end of last week, we're now perhaps
outwearing our welcome. The environment has been generally positive and
drama-free for mortgage rates for a few weeks now. So much that one has to
wonder when we might see a natural push back in the bond market. The rally has
gone on long enough so a bit of a correction is possible, even if the longer
term trend remains borrower friendly. From that perspective, with high impact
economic events coming up this week and the "Flight to Safety" set to
be tested, this is a good week to look at locking. Especially with rates at
their best levels in a month and the understanding that we'll need a major movement
in the secondary mortgage market for best-execution rates to fall below current
levels. The Employment Situation Report on Friday is the big-ticket economic
data this week, with the power to push rates higher or lower depending on how
the market receives it. FULL ECON CALENDAR AND MBS MARKET
NEW GUIDANCE: Much of today's rebound in the bond market was attributable to short-term trading strategies that may or may not represent a shifting bias toward lower rates in the months ahead. We are still waiting for confirmation of an extension of the recent rally. The Employment Situation Report is always a high risk event for mortgage rates. We are encouraged about the potential for an ongoing mortgage rate recovery beyond that, but are not expecting it to take shape on a quick timeline. If your lock/float decision is more immediate, it's a great time to be locking. Long termers have a bit more thinking to do and most importantly, must decide how much they would sacrifice in cost/rate before locking at a loss in exchange for the chance to see if rates can improve further from here.
What MUST be considered BEFORE one
thinks about capitalizing on a rates recovery?
1. WHAT DO YOU NEED? Rates might not recover as much as you want/need.
2. WHEN DO YOU NEED IT BY? Rates might not recover as fast as you want/need.
3. HOW DO YOU HANDLE STRESS? Are you ready for MORE VOLATILITY in the secondary mortgage market?
"Best Execution" is the most efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%. When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buydown costs.
Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the intense fiscal frisking that comes along with the underwriting process