Mortgage rates moved decisively lower today, following a speech from Fed Chair Janet Yellen.  While she accomplished it in several ways, Yellen's overarching message was that the Fed is in no hurry to raise rates.  Keep in mind, the Fed Funds Rate is not the same as mortgage rates.  In fact, the two can move in opposite directions at times.  In general though, when the Fed is perceived as providing more accommodation (via low rates or various bond buying programs), it's good news for all sorts of financial markets, including the market for mortgage-backed-securities (MBS) that ultimately dictate mortgage rates.

In other words, easy Fed policy is a rising tide that lifts most boats.  Stocks and bonds received a big boost, to be sure (MBS are part of the bond market).  In fact, the MBS gains were so steep that most lenders didn't adjust rates to fully account for the market movement.  This is typical when volatility increases, for better or worse.  If markets are able to hold current levels, rates would continue to drop.  As it stands, the most prevalent conventional 30yr fixed quote on top tier scenarios is now easily back down to 3.75%, with many lenders pushing back into 3.625%.  Just last week, there were quite a few lenders up at 3.875%.  To be fair, there are still some out there today, but that won't continue to be the case unless bond markets take a sudden turn for the worse tomorrow.

As far as the risk of sudden turns for the worse, this is one of those rare opportunities where the average lender could endure a bit of bond market weakness tomorrow without a significant change in rates.  It's one of the only situations where floating could be argued to have a better than 1 in 2 chance of paying off.  That said, days like today carry increased risks of movement in the other direction in the near term.  In other words, you might have to wait for volatility to shake out before taking advantage of the next opportunity to lock.


Loan Originator Perspective

"Bonds rallied impressively today, as Fed Chairwoman Yellen's comments on global economic weakness boosted bond demand. We're well under 1.93% on treasury yields, and both treasuries and MBS are near late February's levels, an impressive improvement for a 2 day period. I'm not in a big hurry to lock as rate sheets don't reflect all our gains yet. We don't have enough confirmation to call this a return to lower rates yet, but it's a nice start! I locked some applications in process, will float new ones to see what tomorrow's pricing looks like " -Ted Rood, Senior Originator

Today's Best-Execution Rates

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

Ongoing Lock/Float Considerations

  • The Fed finally hiked on December 16th, causing fears of rising rates in 2016, but markets began the new year with rates moving surprisingly lower.  Major losses in stocks and oil prices were part of the same trend of investors moving away from risk.
  • After bottoming out fairly close to all-time lows in February, rates began to rise somewhat sharply in March as market panic subsided and as the Fed signaled it would probably still hike rates in 2016--just not as quickly as anticipated.

  • It remains to be seen whether markets can continue to move in this risk-friendly direction (read: bad for rates, good for stocks).  Stocks have yet to break out of a gradual downtrend that began in mid-2015.  If they do, it could keep pressure on rates to continue higher.
  • We HAD been leaning toward locking since March 1st, which has proved to be a very solid strategy, but began to reconsider starting the 3rd week of the month.  We've been more open to the idea of floating since then, as long as you're setting a stop-loss level somewhere overhead, meaning you'd lock to avoid further losses if markets move against you.
  • 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, conventional 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).