Mortgage rates fell to new record lows last week after the Federal Reserve announced they would reinvest principal paydowns of their agency mortgage-backed security portfolio into U.S. Treasuries. While this announcement did lead benchmark Treasury yields significantly lower, mortgage rates lagged greatly as lenders dealt with an influx of lock requests and new loan applications. Consumers who were floating their loan saw total borrowing costs decline by a few basis points, but the best rates are still between 4.25% and 4.625%.
After an unexpected increase in mortgage rates on Friday, lenders improved consumer borrowing costs this morning, but only marginally. The best execution 30 year fixed conventional mortgage rates remain in the 4.25% to 4.50% range for well qualified consumers. We do see a few small independent mortgage bankers and brokers offering 4.125%. 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. You may elect to pay less in closing costs but you will have to accept a higher interest rate. This is a great option for consumers not planning on keeping the current home for more than three years.
Tomorrow is a busy day of data with three potentially high impacting reports: Housing Starts & Building Permits, the Producer Price Index which measures inflation at the producer level, and Industrial Production which provides the market with a measure of the strength of the manufacturing sector. On top of these scheduled releases, the Obama Administration will hold a Conference on the Future of Housing Finance. This event will provide a forum for public input as the Administration continues its work developing a comprehensive housing finance reform proposal for delivery to Congress by January 2011.
HERE is the full events calendar for the week ahead. These economic reports and may not play a major role in the movements of mortgage rates in the days ahead though. Instead look for mortgage rates to be indicative of competitiveness in the primary mortgage market. There are several factors that go into the determination of mortgage rates besides the ups and downs of mortgage-backed securities prices. One example of why two similar-sized lenders would be offering different base mortgage rates (before Loan Level Price Adjustments) is the amount of new loan applications they have taken in over the past month.
If a lender is operating near full capacity, they can slow down production by worsening their loan pricing. The opposite strategy can be employed if a lender wanted to increase loan production. This happens from time to time and is hard to identify unless you have spreadsheets that track loan pricing on a daily basis. This means 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!