Optimism in stock markets put selling pressure on fixed income investments yesterday. Prices of mortgage backed securities (MBS) moved down in price which increased consumer borrowing costs by 0.125 to 0.25 in discount. MBS started out in positive territory early in the morning, following Tim Geithner’s "stock friendly" Congressional TARP testimony, investors began to move their trading positions from fixed income to stocks. By the end of the day MBS coupons could no longer hold their mid-day stability and prices were pushed lower by a round of selling. For a more in depth analysis of his testimony, check out the MBS Commentary blog. Yesterday a few lenders were offering 4.5% at par for 30 year fixed conventional mortgages, however once MBS began to sell off reprices for the worse began to come from lenders and mortgage rates ticked up a few basis points.
So far this morning, MBS are once again under selling pressure as stocks rally and TSY yields move higher. The Federal Reserve continues to support the mortgage industry but lenders will be increasing consumer borrowing costs today. Mortgage bankers and brokers will be offering well qualified borrowers a par 30 year fixed mortgage rate near 4.625% to 4.875% today. To qualify for the best interest rates, you must have a FICO credit score over 740, loan to value at or below 80%, and be willing to pay the closing costs associated with your loan which will include 1 origination/discount point.
Many consumers may not be aware of this, but when lenders issue rate sheets there is more than 1 rate offered on it. Yesterday one of my lenders rate sheet's had a range of rates from 4.375% all the way up to 5.875%. After logging into the lenders site, I discovered that the lender was offering rates all the way up to 7%. Getting an interest rate is like buying anything else...just like a better car costs more money and a higher quality TV costs more money....a lower mortgage rate costs more money!!!
Some consumers may elect to refinance a home and pay no closing costs. Those consumers will not secure the lowest rate; they will be offered a higher interest rate so the lender can pay the costs for the consumer. The lender is able to do this because higher interest rates pay more money (yield spread premium) when the loan is sold to the secondary market.
This option is very good for homeowners staying in a property for a short period of time. However the longer you intend to occupy your property the more sense it to pay your own closing costs and secure a lower rate for the life of the mortgage (less spending over time). Please consult your mortgage professional to find out which option is best for you. Closing costs are a touchy subject with consumers as many feel some of the fees are junk fees, which in some cases is true, but often times those junk fees go towards paying the processors, underwriters, closers, and shippers who work on your loan. I would like to hear from consumers in the comments about the subject of closing costs. Do you think it is fair for lenders to pass through operational expenses to borrowers? Did you pay your closing costs or did the mortgage banker/broker pay them for you?
This morning, the Mortgage Bankers’ Association released the purchase applications index which measures the amount of applications at mortgage lenders for purchase loans. An increasing number shows more people to be buying a home and a decreasing number shows less people buying a home. If more people are applying to buy a home, that would be considered positive news for our economy. Think about it, when you buy a home isn’t there a lot of things you need to buy to furnish it? Appliances, window treatments, carpet, etc… In addition, doesn’t someone have to feel pretty comfortable about their own financial position and the economy to buy a home? So, this report gives investors an idea into future economic momentum. This morning the MBA Weekly Applications Report indicated that purchase applications fell by over 4% last week. So it appears that many people are still sitting on the sidelines or just cannot qualify We do get existing home sales and new home sales for April later this week.
Early reports from fellow mortgage professionals are showing par rates to be at 4.625% for the most aggressive lenders. As far as our direction for the day, on days with very little economic data to drive the markets, we will more than likely respond to the flow of money and headline news items.
On a sad note, the CFO of Freddie Mac died last night in his home. Early reports are indicating a suicide but nothing is confirmed. Our condolences go out to his family and friends.