After holding steady near the top of the current trading range, mortgage backed securities came under selling pressure yesterday afternoon as stocks rallied off intraday price lows. Several lenders repriced for the worse as MBS losses held into to the close.   Despite the price decline of MBS and maringal loss of rebate on rate sheets, par mortgage rates are still holding their recent range between 4.875 and 5.125.   To remind readers, the price and yield of MBS and treasuries are inversely related.  As the price moves higher, the yield or rate moves lower and vice versa. 

There are no major economic reports coming to us today, but we did get a read on home prices.  The Federal Housing Finance Agency(FHFA) released their monthly House Price Index which tracks the monthly change in home prices.  This index only covers conforming conventional loans of repeat transactions by comparing prices or appraised values for similar houses.   A conforming loan amount is one in which the loan does not exceed $417,000. High cost conventional loans apply to areas such as San Francisco and Washington DC where home prices are higher, that limit increased to $729,000. This data set excludes FHA and VA loans from the numbers since they are not a conventional loan.   Market participants pay attention to home values as consumers are more likely to spend money in times of home appreciation and less likely to spend when homes are declining in value.   Additionally, rising home prices encourages more construction which leads to more jobs and more consumer spending.   Many economists believe that our economy will have trouble recovering until home prices start to move higher.   Recent reports have shown home prices starting to firm and expectations are for that trend to continue.

The report shows that home prices increased by 0.3% which is slightly below expectations but continuing a streak of three months in a row with home prices moving higher. 

At 1pm eastern, the U.S. Department of Treasury will auction off $43billion of 2 year notes.  Since the supply is known in advance, market participants will look at the demand at the auction to gauge its success.  Strong demand, especially from foreign accounts, has helped keep fixed income yields and mortgage rates low.  However, this week Japan is out on holiday, so there is a possibility of a decrease in auction participation. This is the first of three auctions that will be held this week with $40billion of 5 year notes coming tomorrow and $27billion of 7 year notes coming on Thursday.  Matt and AQ will cover these auctions once they are completed on the MBS Commentary.

Today is day one of the Federal Open Market Committee(FOMC) two day meeting.  The FOMC meets roughly every six weeks and they decide on our nation’s monetary policy.   The interest rate set by the FOMC is known as the Fed Fund rate and serves as the benchmark for all other rates.    A higher fed fund rate is intended to slow down economic activity that can lead to higher inflation while a lower fed fund rate is intended to stimulate the economy.   It is widely accepted that they will maintain the current fed fund rate of 0 to .25%.   Not much happens during the first day of the meeting, but tomorrow we get the official announcement of the Fed policy once the meeting concludes at 2:15eastern.

Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for the best qualified consumers.  If you are seeking a 15 year conventional rate mortgage, you should expect a par interest rate in the 4.375% to 4.625% range.  In order to secure a par interest rate you must have a FICO credit score of 740 or higher(620 if seeking a 15yr), a loan to value at 80% or less and pay all closing costs including 1 point loan origination/discount/broker fee.