Mortgage rates moved higher today as MBS prices fell following two better than expected economic reports. The move lower in MBS prices forced lenders to reduce rate sheet rebate, pushing consumer borrowing costs higher for the third consecutive day. The streak of rising rates was started by a weak 3 year note auction on Tuesday which carried over into Wednesday and Thursday after the Treasury found it difficult to attract demand for their auctions of 10 year notes and 30 year bonds. Unfortunately the negative momentum extended into today thanks to retail sales and consumer sentiment releases were better than anticipated.

In regards to the retail sales report....this data measures the monthly change in total receipts at retail stores that sell both durable and non durable goods. Since consumer spending accounts for two-thirds of GDP, market participants track this report to get a read on economic momentum.  More spending by consumers would lead to growth in corporate profits, which is good for stocks and bond for bonds and MBS prices. 

The report indicated that retail sales were greater than originally forecast, overall sales increased at a rate of 1.3% while core retail sales, which does not include auto sales rose at a rate of 1.2%. This was the third increase in the last four months.  AQ wrote on the particulars of the report this morning. READ MORE

The second report that pushed rates higher was the University of Michigan’s Consumer Survey.  The UofM questions 500 households each month on their personal financial conditions and attitudes about the overall economy.  An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save.   The prior two months showed consumers becoming less optimistic and expectations for this report called for a slight increase.  The report indicated that Consumer Sentiment is much higher than expected coming in at 73.4 after last month’s 67.4 reading. 



Reports from fellow mortgage professionals indicated that lenders were offerring less rebate on rate sheets.  While rate sheets worsenedm, the par 30 year conventional mortgage rate did hold in the 4.75% to 5.00% range for well qualified consumers.  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 an estimated one point loan origination/discount/broker fee.  If you are seeking a 15 year term, you should expect a par rate in the 4.25% to 4.50% with similar closing costs.

Rates can go either direction from this point.  As year end approaches, Wall Street will become progressively more quiet as traders and sales staff take vacation time to enjoy the holiday season. This implies rates have the potential to bounce around in a volatile manner as "thin" trading conditions (illiquid/quiet) will generate wider ranges. Again this makes it difficult to formulate an accurate outlook. While there is the potential for rates to move higher, we believe the market views current rates as cheap, which should provide some support and help keep rates from rising further. But again, I remind that year end trading conditions can be volatile and often times the market's reaction to news events can move rates in a wider range. That said, I will continue to state what I said yesterday.  If you are conservative and cannot afford for your payment to move any higher, remove all risk and lock your loan.  If you are a risk taker and are willing to test the reliability of the rate range, which I discussed yesterday, continue floating. Just know it is a risky move because of expected volatility (due to a lack of liquidity as the year comes to a close).

Qualifying for a mortgage is becoming more and more difficult.  Lenders are tightening guidelines even further than what Fannie Mae and Freddie Mac will accept.  Additionally, it appears that lenders are looking for any reason to deny a loan.    Federal Reserve Governor Elizabeth Duke spoke about this in a conference in Chicago yesterday calling attention to over tightening mortgage underwriting standards which is prohibiting a housing recovery.  In the speech she stated “Even taking into account the excesses of the bubble period, it appears that lenders have tightened underwriting terms so much that the lack of credit availability is at least partially an impediment to homeownership.”  AQ wrote a article on this subject, which you can check out HERE

What is your opinion of mortgage underwriting standards? Have you been rejected when you thought your credit profile warranted an approval?

Have a Great Weekend