Yesterday we informed you that the best execution conventional 30 year fixed mortgage rate had fallen to 4.75%. Well it moved back up to 4.875% today.
In yet another volatile trading session, lenders were excessively unfriendly with loan pricing out the gate this morning. However, following a strong 10-year Treasury note auction, MBS prices benefited from a modest benchmark interest rate recovery rally. The corresponding effect on mortgage rates was widespread repricing for the better. Repricing for the better = cheaper closing costs. Repricing for the worse = more expensive closing costs.
Unfortunately, even after reprices for the better, loan pricing was still worse than it was yesterday and the best execution conventional 30 year fixed mortgage rate still moved back up to 4.875%. We say 4.875% is the best execution conventional 30 year fixed mortgage rate because the average cost to permanently buydown your mortgage rate from 4.875% to 4.75% is outrageously high, reflecting a complete lack of liquidity for 4.0 MBS coupons in the secondary mortgage market.
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 recording.
If you're shopping for an FHA 30 year fixed mortgage, 4.75% is your "Best Execution" target. If you're shopping for a 15 year fixed mortgage rate, we see a sweet spot at 4.25%. On 5-year ARMs, we've heard of very well qualified borrowers being quoted rates as low as 3.50%.
Treasury auctions have been the bond market's main source of motivation this week. Generally these Treasury auctions exert added pressure on mortgage rates to rise. Tomorrow is the last auction of the week. Once this cycle of government fundraisers is complete, we will have a much better idea of the bond market's willingness to rally mortgage rates lower.
The bottom line still is: Although we are successfully out of the woods with respect to the high-risk event of last Friday's Employment Situation Report, we're not "risk-free" going forward. We are encouraged about the prospects for mortgage rates to improve, but we're literally operating on a day by day basis. Waiting for news and events to dictate directionality in the bond market.