Mortgage rates greatly benefited from headline news yesterday. Around mid-morning we learned that Standard and Poor's had cut Greece's government debt rating all the way down to junk. That is as low as ratings go! Stocks, which have rallied for eight consecutive weeks, sold off sharply on the news. This was a positive for mortgage rates because stock selling led to a "flight to safety" rally in the bond market which pushed benchmark Treasury yields lower and mortgage-backed security prices higher. Gains in the secondary market were large enough to allow lenders to reprice mortgage rate sheets for the better.
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 money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return. To remind readers, as benchmark Treasury yields fall, prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which forces lenders to push mortgage rates higher.
Early this morning the Mortgage Bankers Association released the Weekly Mortgage Applications Survey. The MBA survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole.
Today’s release indicated purchase demand continues to trend higher as the homebuyer tax credit gets closer to its April 30th expiration. Purchase applications increased +7.4% from last week while refinance applications fell 8.8%. It appears that most prospective home owners are looking to finance their home using FHA insured loan programs. AQ discusses a trend toward borrowers putting down less money and its relation to the housing recovery. READ MORE
If you are hoping to take advantage of the up to $8000 tax credit for first time home buyers or the up to $6500 for repeat buyers, you better hurry. To qualify, you must be under contract by April 30 and your loan must close by June 30. It appears that there is no chance of this government stimulus to be extended. READ MORE ABOUT THE TAX CREDIT
We had our third Treasury auction of the week today. This time the bond market had to buy $42 billion 5 year notes. Today's auction went off much better than yesterday's 2 year note auction. Indirect buyers, which are seen as overseas central bankers, did step up and buy a big chunk of the offering which is good because it confirms that global investors are confident in the US. This combined with continued participation from big investment funds like Vanguard and PIMCO helped the today's auction go smoothly. READ MORE
The Federal Open Market Committee today released their monetary policy statement. Here is a description of the FOMC and the Federal Reserve:
"The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States. It was created by Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role has evolved and expanded. The Federal Open Market Committee (FOMC) is the monetary policy making body of the Federal Reserve System. It is responsible for formulation of a monetary policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. The Federal Open Market Committee consists of twelve voting members: the seven members of the Board of Governors and five of the twelve Federal Reserve Bank presidents. The president of the Federal Reserve Bank of New York serves on a continuous basis; the presidents of the other Reserve Banks serve one-year terms on a rotating basis beginning on January 1 of each year."
The FOMC statement, released at 2pm, reiterated that interest rates would be kept accommodative for "an extended period", it said inflation was still under control, and made no mention of the Fed's MBS portfolio. It was a non-event. READ MORE
Mortgage rates are improved from yesterday morning but higher than they were after lenders repriced for the better yesterday afternoon. It appears the stock sell off that happened yesterday was overdone. This was confirmed when Standard and Poor's downgraded Spain's government debt rating today, yet stocks still recovered from yesterday's lows. This resulted in investors selling risk-free Treasuries. Treasury selling led mortgage-backed security prices lower which forced lenders to offer higher mortgage rates this morning.
Reports from fellow mortgage professionals indicate the par 30 year conventional mortgage rate is holding in the 4.875% to 5.125% range for well qualified consumers. 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 but lower FICO score requirements.
In accordance with the “lock at the price highs, float at the price lows” motto....I favor locking all loans closing within the next 30 days.