It was an up and down week for mortgage backed securities last week.  Despite better  than expected economic data, MBS didn’t give up too much ground and mortgage rates did manage to dip to 4.75%. However by week’s end, rates had risen to 4.875% for the best qualified consumers.   To remind readers, mortgage rates are determined by the trading of mortgage backed securities.  As the price increases, lenders can generally pass along lower mortgage rates.   As prices fall lenders offer higher mortgage rates which returns a greater yield to the end buyer of the MBS. 

The week ahead is fairly light on economic data.   Today, the Conference Board releases the monthly Leading Indicators index which is a composite index of ten economic indicators that should lead to overall economic activity.   The report came in just below expectations with the prior two months both being revised higher.   No reaction in the markets following this report. 

We receive no economic data on Tuesday but we do have the first day of the Federal Open Market Committee meeting where our nation’s monetary policy is set.  The Fed is expected to keep the Fed fund rate at the current accommodative level of 0% to .25%.  The announcement will come on Wednesday at the conclusion of the meeting with the release of their statement which will also give an outlook on future economic conditions.   Market participants will scour this statement for any hint of future monetary policy.  Three weeks after this meeting, the FOMC will release the minutes from the meeting which will provide inside information for how each member of the board voted and their thoughts on monetary policy and economic outlook.   

The U.S. Department of Treasury will also conduct three auctions this week.  The added supply of debt available for sale can apply pressure on both treasury yields and mortgage rates to rise.  Strong demand for our nation’s debt is one of the contributing factors which have kept mortgage rates near all time lows.    Hopefully investors will continue to soak up the record supply of debt.   On Tuesday we get $43billion of 2 year notes, Wednesday is $40billion of 5 year notes and Thursday we get $27billion of 7 year notes up for auction.  Each is $1billion more than the prior auction of similar maturities.    These auctions will be held at 1pm eastern and will be covered by Matt and AQ in the MBS Commentary blog. 

Thursday brings us two pieces of data to digest.  First is the weekly jobless claims which is expected to show continued improvement on the labor front.  Last week’s report did show the weekly claims falling but the continuing claims which totals the number of Americans that continue to file due lack of finding a new job rose unexpectedly.  In general, mortgage rates improve with higher unemployment.   Lastly we get a read on housing with the existing home sales report.  This data measures on an annualized pace the number of existing homes, not new construction, that  a sale closed during the prior month.  The last four readings of this data has shown existing home sales to be improving with July’s report showing the largest one month increase since 1999!  It appears low home prices, low mortgage rates and government stimulus for first time home buyers is having an impact on the housing market.   This month’s report is expected to show continued improvement in the housing sector.

While on the subject of housing, I want to encourage everyone that is considering buying a new home to call in sick and go buy a few houses while the gettin's good.  Why?  The $8000 tax credit for first time home buyers is set to expire on November 30th.  If your loan for any reason closes AFTER that date, you WILL NOT qualify for the credit (no soup for you).   This tax credit is part of the American Recovery and Reinvestment Act that was passed earlier this year.    Check out my blog from last Thursday for links to more information including videos from the IRS to help clarify all the details.    The clock is ticking.

Our week is wrapped up on Friday with the busiest economic data day.  The highest impacting will be the Durable Goods order report followed by Consumer Sentiment and New Home Sales.   For more on the week ahead, click here for the MND story.

Many consumers have secured their home financing needs with an FHA mortgage.  FHA has announced several credit policy changes which I will discuss in future blog posts with one key decision being the adoption of some of the HVCC appraisal guidelines.  If you would like to read up on these changes, click here.   What are your thoughts regarding these changes? 

Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage is in the 4.875% to 5.125% range for the best qualified consumers.  In order to secure a par interest rate 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 one point loan origination/discount/broker fee.   As always, you can elect to pay less in fees and secure a higher interest rate or pay additional fees to buy a lower rate.

MBS continue to be confined to the current trading range which has held mortgage rates between 4.75% and 5.00%.  Following the release of the Leading Indicators data, MBS have started to approach the top of that range.   It has been our position that when MBS are at the top of the range to lock, and float when near the lows.  If you are floating a rate, make sure you check out the MBS Commentary blog where Matt and AQ will post updates and alerts if MBS start to sell off which could lead to higher mortgage rates.