Yesterday was a sleeper of a day for mortgage backed securities, again.  We closed at the same level we opened like we did on Monday.  We had a few instances of a sell off, but each time the Federal Reserve jumps in to bring the price back up.  As the price of mortgage backed securities move higher, the yield they return to end investor drops which causes mortgage rates to drop.  As said before, I do not anticipate interest rates to move higher since the Federal Reserve has a huge checkbook ready to buy mbs.  So far this morning we are slightly higher in price mainly due to the economic reports that were just released. 

We got the release of retail sales and import prices and they where positive for mbs.  First, retail sales came in much lower then expected at a monthly decline of -2.7% when economists where expecting only a -1.2% drop.  When excluding autos, the number fell even more by -3.1% when expectations where for a -1.3% drop.  Worse then expected economic data is generally a positive for mortgage backed securities due to the flow of money.  For example, with retail sales dropping, why would you want to buy stock in lets say Wal-Mart?  With lower sales, they will have lower profits thus the stock will not perform well.  So, investors pull their money out of stocks but they do not want to sit on cash, so what they do is move their money into fixed income investments such as Treasuries and mortgage backed securities.  This is why worse then expected economic data generally leads to lower mortgage rates as investors start to buy mbs which drives the price higher and lowers mortgage rates.  We also got another positive report for mbs in the form of import prices.  Import prices fell by -4.2%.  This is positive for mbs as lower prices leads to less inflation and as I have stated many times before, the biggest enemy to mortgage rates is inflation.  So, low inflation leads to low mortgage rates and in the current environment, inflation is not a worry.  Other then the release of oil inventories which we get in a couple hours that is all the economic data for the day. 

Lenders are not out with their rate sheets this morning but I do expect slightly better rates today then yesterday for a couple reasons.  First, the price of the current mbs coupon is at the highs of the last couple days, so if we can hold these levels until rates come out we should see slightly better rates by about a .25 or so in discount.  Secondly, today is the first full day after the January settlement.  This basically wipes clean the lenders pipelines and a great way for a lender to attract new loans is to lower rates to get their pipelines filled.  I expect lenders to be priced anywhere from 4.375% to 5% for a 30 year fixed conventional loan with the lenders needed loans pricing more aggressively and the lenders still swamped with loans to be more conservative.  Government loans such as FHA and VA, are priced slightly higher then conventional loans.  Whenever you see me post a rate on this blog, please keep a few things in mine.  The rates I quote are for Texas properties, and rates do vary from state to state.  Next, I quote par interest rates.  For a consumer to get a par interest rate they would be required to pay the closing costs associated with the loan and 1 point.   I get many comments and emails from readers saying that they were quoted this rate with no costs.  I do encourage everyone, when getting a rate quote ask what the rate would be with no costs, with paying just the closing costs and with paying the closing costs and a point.  If you are doing a no cost loan, you are still paying the closing costs, you are just paying it by taking a higher interest rate.  The general rule that I use with my clients is if you plan on staying in your home for at least 3 years, then pay all costs and a point.  If only staying in home for 1 ½ to 3 years, then pay only the costs(no point), and if you are staying in home for less then a year and half do a no cost loan.  

I will get back to you if conditions warrant but my general float stance is still in effect.  If your loan is in processing, float until your lender gives you a clear to close then lock on the shortest lock period.  However, if you can lock today at 4.625% or better, then I would suggest that you lock.  I suggest this mainly due to what happened last month.  Lenders came out with real aggressive pricing, their pipelines got filled with loans, so to slow down the volume they increased rates even though pricing of mbs continued to move higher.  This could very well happen again and anytime you can lock a 30 year fixed rate loan under 5% that is a good time to lock.