You'll have to look closely in order to see a difference between the introductory paragraphs of today's commentary and yesterday's...
Today's 30-year Treasury Bond Auction was a net-positive for mortgage rates... and while the best-execution 30-year fixed mortgage rate did not decline, the upfront cost to obtain that rate quote improved further. We are once again near one-month lows in mortgage rates. We've been here a few times over the past month though, it's where positive progress has stalled everytime the environment indicated lower rates were ahead.
CURRENT MARKET: The "Best Execution" conventional 30 year fixed mortgage rate is still 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 keep your new mortgage outstanding 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: Today we see validation for the improved floating outlook mentioned yesterday (note: "improved" simply means it's better than it was, but not necessarily preferred or recommended). Indeed, the general theme of the guidance remains unchanged: "floating this week is better than it was last week, but remaining defensive overall." Anything can happen with tomorrow's bond auction and with Friday's economic data, so there's no harm in locking in now when rates are as good as they've been in over a month. That said, those with the flexible time-frames and levels of necessity are justified floating, assuming that stop-loss points are set.
NEW GUIDANCE: Today we see MORE validation for the improved floating outlook mentioned earlier this week. From: Mortgage Pricing Hits Wall. Loan Demand Declines...
"Lenders have moved the Best Execution 30-year fixed note rate as low as they possibly can without drastically altering their pipeline hedging strategies. This is a factor of what production mortgage-backed security coupon is most liquid in the secondary mortgage market. On conventional loans, the 4.50 percent MBS coupon is the hedging vehicle of choice for lock desks. Home loans with note rates between 4.875 and 5.25% are generally used to fill 4.50 percent MBS coupon trades. Until MBS investors demonstrate sustainable demand for 4.00 percent 30-year fixed MBS coupons, lenders will not find it economically efficient to quote 4.75 percent note rates without expensive permanent buydown costs. From that perspective, if you are floating a conventional home loan interest rate, you should not be expecting further improvements to your actual rate in the short term. If the bond market recovery rally continues, closing costs will improve, but on the whole, it will take a sustained move higher in 4.00 percent MBS coupon prices for Best Execution to dip below 4.875 percent."
Plain and Simple: We're going to need a sustained bond market rally to see "Best Execution" break through the 4.875% barrier.
"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.