Mortgage rates generally held steady amidst a shifting investing environment yesterday. I say "generally" because some lenders improved mortgage rates while others moved consumer borrowing costs higher.

It may seem odd that two lenders would push mortgage rates in different directions on the same day but it's actually very common. There are several factors that go into the determination of mortgage rates besides the ups and downs of mortgage-backed securities prices. One example of why two similar-sized lenders would be offering different base mortgage rates (before Loan Level Price Adjustments) is the amount of new loan applications they have taken in over the past month.

If a lender is operating near full capacity,  they can slow down production by worsening their loan pricing. The opposite strategy can be employed if a lender wanted to increase loan production. This happens from time to time and is hard to identify unless you have spreadsheets that track loan pricing on a daily basis.

This "mixed" behavior carried over into rate sheets today. Some lenders improved borrowing costs while others pushed closing costs higher. The lenders who improved borrowing costs are attempting to "buy the market", which makes sense given current market conditions. Stock sentiment is improving and benchmark Treasury yields have risen out of economic "double dip" territory. This has led mortgage-backed security prices lower and put pressure on mortgage rates to rise.

When the investing environment starts to shift in favor of stocks, borrowers who were trying to pick a bottom in mortgage rates generally begin to panic about the status of their floating rate lock.  Lenders look to cater to this crowd by offering rates that are slightly more aggressive than their competitors, but not below market.  Don't get complacent with these rate quotes though, they usually disappear after the lender buys enough of the market to keep them busy as interest rates back up and refinance demand declines.

While loan pricing has been somewhat detached from the movements of MBS prices over the last few sessions, one thing is for sure: MORTGAGE RATES ARE UNDER PRESSURE!

This is what I wrote yesterday:

"Although the calendar has more to share in the week ahead, mortgage rates are still expected to take their directional guidance from the sentiment of related markets. Meaning: if stocks rally, mortgage rates will go up. If stocks fail to extend the positive progress that was achieved last week, consumer borrowing costs will cheapen. After several weeks of operating in a pessimistic investing environment, the sentiment of the marketplace appears to be shifting in favor of riskier assets like stocks. This is a factor of corporate earnings season. Many analysts have forecast strong earnings because firms have cut expenses to make profiting more possible. While this does not reflect an improvement in macroeconomic conditions (jobs and housing), the markets are highly focused on taking advantage of short term opportunities... and healthy earnings would would likely lead stocks to higher ground and force mortgage rates up." READ MORE


The S&P rallied 1.54% today, extending it's winning streak to six days, benchmark Treasury yields closed at their highest levels in almost three weeks,  and mortgage-backed securities prices, which have resisted a sell-off thus far, began to fall at a faster rpace. A few lenders repriced for the worse toward the end of the day but most kept pricing unchanged. This leaves lenders in the position to increase mortgage rates substantially tomorrow morning...IF stocks continue to move higher and MBS prices trade lower. If you are floating your loan, you're doing so in choppy waters. Lenders will only attempt to "buy the market" for so long before it is no longer worth their while.

The best par 30-year fixed mortgage rates remain in the 4.375 to 4.625% range. These quotes are the baseline scenario for well-qualified borrowers. If your middle FICO score is less than 740 or your loan to value is over 80% (conventional not FHA) you can expect to pay higher closing costs. HERE is a breakdown of loan level price adjustments.

Last but not least I want to address a few questions that were posed in the comments section of yesterday's blog post. One reader asked my opinion on whether or not they should lock or float their loan which is scheduled to close in September. I have yet to supply an answer, but I have good reason.  The beauty of running Mortgage News Daily is I don't always need to be the one who supplies fresh content, our community of mortgage professionals is more than capable. Sometimes I don't even need to respond because a competent loan officer has already done so. In this case it was Jason Harris:

Jason you're not stepping on my toes. I couldn't have said it better myself....