Mortgage rates moved even higher today. It's official, we're on a losing streak.

The best par 30 year fixed mortgage rates have risen to the 4.125% to 4.375% range for well qualified consumers. 4.25% is "best execution". 4.375% is widely quoted. If you're seeking a shorter term mortgage loan, the best par 15 year rates are still in the  3.375% to 3.625% range.

Mortgage Rate Disclaimer:  Loan originators will only be able to offer the lowest conventional and government (FHA/VA) 30 year fixed mortgage rates to borrowers who have perfect credit profiles. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan a riskier investment. (eg. investment properties and second homes trigger an adjustment )

Consumer borrowing costs have now risen in 5 of the last 7 sessions...and the nervous chatter in the air is deafening.

I understand why folks are getting anxious. We've watched mortgage rates creep farther and farther from record lows,  but I have to remind that we expected this to happen. Last Friday we waved one last "Lock now or hold your peace until November 3" warning flag.....

"If you're getting closer to your closing date and need to lock in the terms of your loan before the November 3rd FOMC meeting, you have likely seen rates go as low as they're gonna go. At this point the lock/float decision is starting to split  hairs. The current mortgage rate/closing cost structure is extremely aggressive. It's time to lock in the terms of your loan."

So if you're still a passenger on the float boat, it's because you made a decision to pass on rates below 4.25% in favor of a chance to lock in a rate below 4.00%. It's because you decided to PLAY THE RANGE UNTIL BERNANKE PLAYED YOU.

Yes the bond market's bearish behavior is sending scary messages to mortgage rate watchers. These signals should not be taken as a reason to believe the Fed is not going to announce QEII on November 3, 2010 though. Instead, they are a factor of the bond market being overcrowded into one trade after a period of QEII over-exuberance. A QE sugar high.

Plain and Simple: The bond market got way head of itself about QEII. The sugar high has officially worn off. However because it is a "trader's market" and a trader is always looking to profit, the over-exuberance correction picked up day trader momentum and led to an unexpected short term trend of rising mortgage rates.  One  I expect to exhaust before November 3, 2010.

I stand by these comments....

On November 3, 2010 I anticipate the Federal Reserve will announce another Quantitative Easing program. This event is expected to lead consumer borrowing costs back down to record lows, which means we should see mortgage rates dip below 4.00% with much more attractive float down structures (in terms of how long it will take to recover points paid at closing).

Do I think mortgage rates will go lower than 3.75% if the Fed announces QEII?

No I do not. Why don't I see rates moving below 3.75? Because I don't see 3.0 MBS trading in enough liquidity to allow lenders to offer rates below 3.75%. This is a bold prediction considering we don't know exactly what the Fed is plotting.  If 3.0s do trade in size, lenders will be able to go as low as 3.25%

How long do I think QEII will keep mortgage rates at the record lows?

Long enough to lock your loan at record low rates!!! :-D

Unfortunately I can't provide an acceptable answer to that question yet, we just don't know enough details about the QEII program. We do however know that the Fed is looking to spark a little "Demand Pull Inflation", and we also know inflation is the enemy of  mortgage rates. While demand pull inflation won't ignite immediately, if the Fed's QEII plan is as successful as previous alternative policy strategies (which were intended to stabilize the economy, and they did),  mortgage rates  will eventually rise, and it will happen on the slightest hint of consumer led inflationary pressure or sustained job creation. I'm not even going to venture a guess on when that might happen  though. Traders, economists, and analysts alike are still operating in a very reactive manner.  Outlooks are constantly changing as the economic and political environments evolve.  Let's see what the Fed says on November 3rd and go from there....

I will say this about the timing of your refinance though...

I fully anticipate another dip in home prices over the winter. If you're waiting to refinance and you know home values in your area have already been negatively affected by foreclosures, make sure you keep track of sale prices in your neighborhood, especially if you see "HomePath" signs hanging in the front yards of homes for sale in your area.  You don't want to miss an opportunity to refinance at  record low rates because your home lost another 5% in value while you were waiting for borrowing costs to go even lower.

What if the Fed chooses not to announce QEII on November 3, 2010 ???

If QEII is not announced, the bond market would sell off and mortgage rates would suffer, instantly. The 3.50 MBS coupon would become illiquid and the best par 30-year fixed mortgage rates would move up to at least the 4.375% to 4.625% range for well-qualified consumers.

If QEII disappoints...well that depends how the bond market positions itself ahead of November 3rd. I would expect a pre-FOMC rally because there has recently been an increase in "short selling" in the bond market (long end), these shorts will eventually need to be covered (profit taking). Covering means buying would take place which implies we should see interest rates turn around sometime in the near future. If the Fed disappoints the Fed disappoints...either way I still think mortgage rates  touch record lows again.

REMEMBER: The "best executed" lock/float strategy comes down to finding an originator who knows the loan market, studies underwriting guidelines, and just plain old gets the J.O.B done.  You have to let the loan officer earn their commission. That's how you "ride the float boat" in this environment...make sure you have a damn good skipper. Plain and Simple.