Mortgage rates had their best day of the month today following Fed Chair Yellen's testimony before the Senate Banking Committee.  That's part of a 2-day semi-annual update that the Fed gives to congress.  In this modern electronic age, it's a wholly unnecessary relic from a bygone era when everything that every member of the Fed has said on the record wasn't instantly available on the web.  And so it has devolved into a painful display of American bureaucracy where congress-people can vent their frustrations or display their ignorance for a quick sound-byte.  All that having been said, markets still treat this as the Fed Chair's twice-a-year chance to set the record straight in a Q&A format, less constrained by the formalities of official FOMC communications.  

This time around, market participants were anxious about the possibility that Yellen would say something to confirm an accelerated rate hike time frame.  Last week's Fed Minutes suggested patience in that regard, but the meeting where those minutes were recorded took place before the most recent jobs report.  The risk was that the super strong employment data would somehow accelerate the Fed's timeline, resulting in a rate hike within the next few meetings.  After hearing from Yellen today, trading levels went back to suggesting a September rate hike.

While this wasn't the only ball in play today, it was the main motivation for bond markets returning to stronger levels.  MBS (the mortgage-backed-securities that most directly influence rates) came along for the ride and almost every lender repriced rate sheets at least once.  By the end of the day, we're as close as we have been to 3.75% being the dominant top-tier rate quote for conventional 30yr loans as we have been in nearly 2 weeks.  It's arguably taking the lead from 3.875% at current levels.

Loan Originator Perspective

"Seems the market was expecting Yellen to be much more hawkish today in her yearly testimony to Congress. The benchmark 10 year note managed to bust through 2.04 which was solid resistance for the past few weeks. With the 10 year well below resistance, i would recommend to continue to float to see if these gains can be added to tomorrow. It is month end which is usually supportive for bonds. If you wish to lock in today's gains, wait as long as possible to allow time for your lender to pass along the improved pricing." -Victor Burek, Open Mortgage

"Mortgage Rates improved today and then they did so while following the 10 year US Treasury through an important level. The 10 year yield moving below 2.04% is a strong indicator that lower rates may be ahead. The only problem, regarding locking or floating, is that we'll need to remain below these levels for a few days before we can be confident this is more than a test. Be ready to lock, but I personally think floating is a good decision as lower rates may be around the corner." -Brent Borcherding,

"Rates finally improved substantially today, as both treasuries and MBS saw broad gains. Great day to lock for those who've been riding out our recent higher rates. The big unknown is whether this is a break in the drift towards higher rates, or just a brief respite. I'd love to see us stay in this range for several days. If we do, it will bode well for rates in March." -Ted Rood, Senior Originator

Today's Best-Execution Rates

  • 30YR FIXED - 3.75-3.875
  • FHA/VA - 3.25-3.5
  • 15 YEAR FIXED -  3.00-3.125
  • 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

  • 2015 began with a strong move to the lowest rates seen since May 2013.  The catalyst has been and continues to be Europe.

  • European bond yields trended constantly lower in 2014, thus playing a prominent role in keeping US rates lower than they otherwise might be.  Many feel that Europe will continue to slide until their central bank engages in US-style quantitative easing.  Some see this happening in early 2015.  In any event, we're looking for a turn in Europe, first and foremost, before worrying about the longer-term trend in bond markets being at serious risk of reversing.
  • It's impossible to know when Europe will turn a corner, and even then it's only the sort of thing we'll be able to observe in hindsight.  That means every head-fake toward higher rates runs the risk of developing into a longer term rise, even if those risks vary greatly in terms of probability.  Clients with longer term time horizons and who otherwise don't mind losing some ground in exchange for the chance at locking even lower rates are the only ones who should float.  Clients who must close by a certain date or who can't afford to lose any ground on rates should generally be locking even though the longer term trend has been in their favor for over a year now.

  • As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.'  Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy.  It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).