Happy New Year Rate Watchers!

Volatility was abundant in the primary mortgage market last week.

Lenders repriced for the worse. Repeatedly. Lenders repriced for the better. Repeatedly.

In the end, after all sorts of commotion, mortgage rates were basically unchanged on the week. There is a caveat to add to that "mortgage rates unchanged" proclamation though....

Loan pricing got really segmented in the final two-weeks of the year. Meaning the range of best execution rate quotes being offered by lenders was wider than usual.  Some lenders were aggressive. Others were apathetic and chose to end the year in cruise control rather than attempt to add new production to their pipelines. This behavior is actually not out of the ordinary in a year end environment. We commented on the topic in this Mortgage Rates post last Monday.

The wider range of best execution quotes in the primary mortgage market still frustrated a few fence sitting rate watchers though. This was apparent to us because we received more "Can the lender do this to me" emails from readers than usual. Sure they can do whatever they want! I assure you though, this was not something your loan originator could control so don't take it out on them. 

Loan pricing volatility died down a bit today but we still had a few rate sheets recalled this afternoon. Not to worry, these were reprices for the better. A recall is when lenders announce they are planning to reprice mortgage rates. A reprice for the better lowers mortgage rates. A reprice for the worse increases mortgage rates. Not every reprice results in a noticeable shift in consumer borrowing costs.

Here are current market Best Execution mortgage rate quotes...mostly unchanged vs. last Thursday.

4.875% is "Best Execution" for very well-qualified borrowers seeking a conventional 30 year fixed home loan. 4.75% is best execution on FHA/VA 30 year fixed loans. Some loan officers have gotten upset with us for saying 4.625% FHA was "Best Execution". This is as good as it gets but we still find ourselves swimming in sea of random rate quotes.  The primary mortgage market is very segmented at the moment. In reality, the best execution 30 year fixed mortgage rate is in a range between 4.75% and 5.125% with definite chances of phantom offers (very-well qualified borrowers) as low as 4.625% on FHA  (4.75% on Conventional loans) and as high as 5.25%. Phantom = elusive. We keep hearing whispers of these quotes but have yet to see proof of aggressive buydown structures.

Important Mortgage Rate Disclaimer:
"Bext Execution" is the most efficient combination of note rate and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. 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 more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recordation + escrows (things like upfront MIP (if required), property taxes, homeowners insurance, accrued interest.

For anyone who is waiting for mortgage rates to inch lower, the bond market faces a major hurdle this Friday, January 7, 2011 when the December Employment Situation Report is released. If you are currently being quoted a rate that would reduce your monthly loan payment (enough to be worth the hassle of refinancing), the intermediate term direction that mortgage rates take is largely dependent on this jobs report and revisions to the previous data.

Floating into and through this economic data release is a high risk event. Which means the best execution 30 year fixed mortgage rate could move 0.25% to 0.375% higher. It could also move back down firmly to 4.75% or even 4.50% if the bond market experiences a sustained recovery rally. AGAIN THIS IS A HIGH RISK EVENT!

What MUST be considered BEFORE one thinks about capitalizing on a rates recovery?

   1. WHAT DO YOU NEED? Rates might not recover as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not recover as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready for MORE VOLATILITY in the bond market.