Mortgage rates ended last week with a healthy "flight to safety" rally that pushed consumer borrowing costs closer to the lowest levels of 2010. This occurred after an unexpected news headline hit the market. Panicked investors were quick to sell their stocks and reallocate funds into risk averse assets like benchmark Treasuries. This allowed some lenders to reprice for the better, but not all. It isn’t uncommon for lenders to be reluctant to pass along price improvements on a Friday and also reminds us that lenders are quick to take away pricing but slow to pass along gains.
The news that caught the market off-guard was an announcement that the SEC was filing fraud charges against Goldman Sachs for essentially selling a mortgage investment that was designed to fail.
We only had one economic report hitting the news wires this morning: The Conference Board’s Leading Indicators release. This is a composite index of 10 economic indicators that are expected to provide a forward looking indication of economic activity. If the month over month change is positive, it indicates the economy is improving. Most of the components of this report have already been released so this doesn’t give us much new information. Economists were expecting an increase of +1.0% following last month’s +0.1% increase, but the report indicated a larger than expected month over month increase of 1.4%. Following the release of this better than expected report, the fixed income sector has come under pressure.
Here are the highlights for the week ahead:
- Goldman Sachs reports Q1 earnings
- Weekly Mortgage Applications Index from the Mortgage Bankers Association (low impact)
- Wells Fargo and Morgan Stanley report Q1 earnings
- Producer Price Index (PPI), measures inflation at the producer level. During periods of a weak economy or high unemployment, producers find it very difficult to pass along higher prices to the end consumer. This fact makes tracking consumer inflation of more importance than producer prices.(medium impact)
- Weekly Jobless Claims (medium to high impact)
- Existing Home Sales, Many economists believe housing must fully stabilize and begin to improve before the overall economy can really gain recovery momentum. This makes tracking home sales data of much more importance today than in past years(potentially high impact)
- Treasury Announcement of size of next week’s debt offering of 2 year, 5 year and 7 year notes. The additional supply of debt on the market can pressure both treasury yields and mortgage rates to rise(medium to high impact)
- Durable Goods Orders, reflects new orders place with domestic manufactures for immediate and future delivery of factory goods. Basically this report tells us how busy factories will be in the months ahead as they look to fill the new orders (medium to high impact)
- New Home Sales (medium to high impact)
It was a very slow day on Wall Street as most market participants are still trying to figure out if the Goldman Sachs news is going to spread around to other primary dealers and banks. Unfortunately this was not helpful for the bond market as yields slowly rose throughout the day. This resulted in a few lenders repricing for the worse, but not all.
Reports from fellow mortgage professionals still indicate lender rate sheets to be improved from Friday. The par 30 year conventional rate mortgage is in the 4.875% to 5.125% range for well qualified consumers. There are a couple lenders offering 4.75% today. To secure a par interest rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term, you should expect par in the 4.25% to 4.50% range with similar costs.
With mortgage rates near the best levels of the year, I favor locking any loan closing within the next 30 days. At this point, you have much more to risk than to gain by floating. All year, market participants and lenders have been reluctant to move rates lower than current levels.