Just like the first three weeks of the month, the last week was all about the range in the primary mortgage market. If you're a first time reader and have no clue what we're talking about...

Mortgage rates have barely budged since mid-December. The only real variable in loan pricing scenarios has been the closing costs associated with Best Execution mortgage rates. Otherwise...2011 has been a sideways saunter for fence-sitting rate watchers.  We thought that might change last week, but it didn't.  Home loan borrowing costs barely budged, again. The rates range did not break.

From that perspective, even though we are encouraged about the prospects for a move lower, all we can do is defensively "wait and see" what happens in the month ahead. The comfy confines of the range are still shrinking and the mortgage market is growing even more restless.  Stored energy is itching to be released, bond investors are actively seeking out motivational guidance.  If you are floating your mortgage rate, you must be made aware of this...MORTGAGE RATES ARE JUST AS LIKELY TO FALL AS THEY ARE TO RISE RIGHT NOW.

Our personal view is they are destined to move lower at some point, but we are fully aware of the historical precedent that has been set by lenders. If the rates range breaks in the wrong direction, the move into the 5.00% area would be quick. If the range breaks in a rate watcher friendly direction, the initial knee jerk will be helpful in terms of lowering borrowing costs, but a sustained rally will take time to develop. It will require patience to see mortgage rates drift lower through 4.50%. This isn't fair but it's the way the mortgage market works. So although mortgage rates are just as likely to rise as they are to fall, the move lower would not be nearly as quick.

The week ahead holds the most influential economic report offered to the bond market on a monthly basis: The Employment Situation Report. It carries the potential to shift investment perspectives and realign outlooks and is therefore considered a HIGH RISK EVENT. After going on an eight week winning streak through December into January, we are anticipating a realignment of outlooks in the next 30 days. Stocks are acting as if they have rally exhaustion. If stock markets begin to sell-off or fail to extend their rally, it would be a positive for mortgage rates. This would require a "flight to safety" though.

A flight to safety happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate their money into risk-free government guaranteed U.S Treasury debt to provide a safe-haven AND an investment return. As benchmark Treasury yields fall on "flight to safety" buyer demand, prices of mortgage-backed securities move higher in unison. This allows lenders to reprice their rate sheets for the better and gives originators an opportunity to offer fence-sitting borrowers lower mortgage rates or more competitive closing costs.

On conventional 30 year fixed loans Best Execution is still split between 4.75% and 4.875%. Reports of 4.75% quotes are not widespread though. The permanent  buydown cost from 4.875 to 4.75% are very expensive, but your lender will likely compensate you for those additional costs by providing some sort of closing cost help via lender credit (you will have to pay origination fees).  Again, these quotes are very scattered and vary greatly from lender to lender, but 4.75% is still on the board for a few lucky fence-sitters. The same can be said about FHA/VA 30 year fixed loans, Best Execution is split between 4.75 and 4.625% though. If you're shopping for a 15 year fixed mortgage rate, we see a sweet spot between 4.125% and 4.25%. On 5-year ARMs, we've heard of very well qualified borrowers being quoted rates as low as 3.50%.

For a short-timer day to day risks are still manageable. But we caution you. We're not far from the best levels of the month. If you need to lock your loan soon, this is an opportunity.  We are  GUARDED/DEFENSIVE about your position. But encouraged.

For the medium-term rate watcher, your situation is similar to the short-timer. This is an opportunity. But you've got more time and we're feeling more encouraged about the prospects for lower rates in the next 15-20 days. Sit tight for now, but remain very cautious. We have some cushion to work with....let's see how this plays out on a day-to-day basis. (The range is still the range until the range is no more.)

For the "ho-hum 4.00%ers"...There is much work to be done in the bond market before we can even talk to you again. The 4.00% note rate is currently costing 5 points. Stay hopeful and enjoy the ride.


"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%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buydown costs.

Important Mortgage Rate Disclaimer: 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. Don't forget the intense fiscal frisking that comes along with the underwriting process