Mortgage rates went into the weekend at new record lows last Friday. This was the ALERT we published on Rate Watch...

ALERT: There are some lenders out there, if the APP--to--CLOSING process is flawless, where a borrower could close at 4.25% right now, without paying more than 1 pt.  But you're loan file is gonna have to be a real slam dunk. You must be the definition of "well-qualified".

Mortgage rates moved lower as a result of continued high demand for agency mortgage-backed securities. We have described this demand as a "flight to safety", but from another perspective, what it really boils down to is the highly-competitive loan origination environment. READ MORE

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 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 increase mortgage rates.    The general logic behind the “flight to safety” has been extreme economic uncertainty. 

For the fourth consecutive week, we are wondering if mortgage rates will reconnect with the movements of related markets (stocks and benchmark bonds) or continue to move lower regardless of economic headlines.

The economic calendar includes Pending Home Sales and Factory Orders on Tuesday, plus some Personal Income data that provides another look into the health of consumers.  On Wednesday we get the ADP Employment Report. This is considered a precursor to the official Employment Situation Report, which comes out on Friday morning.  The ADP Report covers only the private jobs sector, whereas the official employment report covers both the private and public sectors. ADP data has been getting more consideration from market participants because it strips out the noise of government Census hiring. 

HERE is the full economic calendar

Also on the events calendar, the Treasury announces the terms of the next cycle of auctions, which will be held next week. The Treasury will sell 3-year notes, 10-year notes, and 30-year bonds. The 10-year note is the most influential debt instrument over agency mortgage-backed securities,  so it tends to be a directional guidance giver for mortgage rates. Over the past month, the one event that has caused some commotion in mortgage rates have been Treasury auctions, keep that in mind if you are floating your loan into next week.

Other than that, the calendar has rolled over to August, which is typically the slowest trading month of the year. Many investors detach from the market in August, this can create irregular activity in the marketplace and cause some confusion amongst consumers. AQ discussed this behavior in more detail: READ MORE

Stocks went on a tear today and while benchmark bond yields moved higher and agency-MBS prices fell, the weakness was contained to a range and mortgage rates kept positive progress in tact. The damage definitely wasn't terrible enough to say 4.25% is no longer available on a 30 year fixed mortgage, it is, but that quote will cost borrowers about 0.20% more in closing costs (as a percentage of your loan amount).

The best 30 year fixed mortgage rates remain in the 4.250% to 4.625% range. Today's losses were not large enough to change the fact that the "best execution" mortgage rate for a well-qualified borrower is 4.375%.  This applies to both conventional and FHA/VA loans. No borrower should be quoted a rate over 5.25%

Lock or Float?

Here is the advice we offered on Friday: The "best executed" lock/float strategy comes down to  finding an originator who knows the loan market, studies underwriting guidelines, and just plain old gets the J.O.B done. You have to let the loan officer earn their commission. That's how you "ride the float boat" in this environment...make sure you have a damn good skipper. Plain and Simple.