The word of the month in the primary mortgage market is "RANGE".  

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 consumer borrowing costs. This generally stable interest rate environment has allowed a feeling of complacency to creep into rate watcher outlooks.  And while some mortgage rate opportunists have a "ho-hum, I need 4.00% to refinance" attitude and therefore are somewhat apathetic toward rising borrowing costs, there are others who need to lock their loan in the next 30 days. This is the group we caution against becoming overly complacent. Don't let the relative stability fool you....

The comfy confines of the range are shrinking and the market is growing restless.  Stored energy is itching to be released, investors are actively seeking out motivational guidance.  The sideways saunter observed in the primary mortgage market over the past month is at risk of becoming a directional dash.

The week ahead offers plenty of potential range breakers in terms of data and events. President Obama will give the State of the Union Address on Tuesday night.  The Federal Reserve will hold a two day FOMC meeting to discuss monetary policy and share an updated economic outlook on Wednesday. We'll get a trio of housing reports as well as a trifecta of Treasury coupon auctions totaling $99 billion.  Not to mention a host of economic reports including a preliminary read on Q4 GDP on Friday.



Here is the problem with the release of that "stored energy"...

If the 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 instant 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.

The "best execution" conventional 30 year fixed mortgage rate is 4.875%. Lenders are still offering 4.75% but the upfront permanent buydown costs would take over 10 years to recover over the life of the loan. On FHA/VA 30 year fixed loans "best execution"  is 4.75%. 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 3.50%.

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. Oh and we can't forget the intense fiscal frisking that comes as part of the underwriting process.

"Best 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.

ANNOUNCEMENT: Mortgage borrowers need to be made aware of some internal policy shifts that are taking place within the industry right now. Starting on April 1, Fannie Mae and Freddie Mac will have increased their fees on certain loans. However because the underwriting and loan delivery process takes about 30 days, lenders are implementing these new costs now. Specifically, borrowing costs have increased on deals with "loan to values" over 75%. This applies to even the most creditworthy borrowers. It is totally based on the amount you wish to borrow relative to the value of your home. Ask your originator for more information on the increase in "loan level pricing adjustments". It will impact your borrowing costs.

Prepare for the worst and hope for the best. A storm is brewing in the mortgage market.