November 14, 2012
Mortgage rates moved higher at a quicker pace today despite the fact that US Treasury yields were unchanged to slightly improved. In some cases, Best-Execution moves up from 3.25% to 3.375% but most borrowers will see today's change in the form of increased COSTS as opposed to increased rates themselves.
We've discussed the relationship between Treasuries and mortgage rates in the past, albeit in a different context, HERE. To summarize, although mortgage rates and Treasuries DO tend to move in the same direction most of the time, there's no rule or structural relationship that guarantees it. For the same reason they can move in opposite directions, we can also conclude and observe that they frequently move in the same direction, but at different paces.
One of those two scenarios have been in play for several weeks, where mortgage rates are simply losing more or gaining less than Treasury yields. In other words, the mortgages haven't been doing so well. There are several potential reasons for this, but no way to say for sure. The more complex reasons have to do with the way investors determine the value of the mortgage-backed-securities (MBS) that groups of individual mortgages eventually turn into. There's speculation that if Obama replaces the current head of the FHFA, that the new director would be more aggressive policies to help stimulate the housing market. That may well be a good thing for the housing market, but the downside is that is decreases the value of those mortgage-backed-securities in the eyes of investors, and all things being equal, that has an upward pressure on rates.
This is just one part of a multi-faceted discussion, however, and one that's largely beyond the scope of an interest rate recap. On the less complex end of the spectrum, we could simply be seeing mortgage markets seek some sort of balance in their relationship to other interest rates following the mid-September QE3 announcement (which really shook things up).
(Read More: What is A Best-Execution Mortgage Rate?)
Loan Originator Perspectives
"We're locking clients today to avoid higher rate risk as mortgage bonds (MBS) can't seem to break above current levels---rates drop when MBS prices rise and vice versa. This lack of MBS investor enthusiasm is influenced partly by prepayment risk in the lower coupons that lenders use as benchmarks to price rate sheets, and partly by optimism (albeit cautious) about a possible U.S. fiscal compromise. For now, the risk of a break higher in rates is outweighing the possibility of yet another MBS rally to drive rates down." -Julian Hebron, Branch Manager, RPM Mortgage.
"Do yourself a favor, Lock your rate in. Not much room on Lender's rate sheets for improvement in near term I fear. (They are swamped---why lower price when demand is so high?)" -Bob Van Gilder (BVG) Finance One Mortgage.
"Markets are rightly focused on the fiscal cliff debacle/debate. Rates lost a little pricing overnight, more on the lender paid closing cost side than on actual rates. I've still got plenty of room to pay most or all my clients' closing costs, but am glad I locked my new applications yesterday rather than risking great pricing for the promise of slightly greater pricing!" -Ted Rood, Senior Originator, Wintrust Mortgage.
"I believe locking your rate is the smart thing to do. Rates are great and you have more to lose by floating than by locking and being done with the worry. Rates shoot up quickly but drift down slowly. Ask your loan officer to give you a couple options and if you can live the worst case, then lock it and be done." -Mike Owens, Partner with Horizon Financial, Inc..
Today's Best-Execution Rates
- 30YR FIXED -3.375%
- FHA/VA - 3.25% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 2.875% - 2.75%
- 5 YEAR ARMS - 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates and costs continue to operate near all time best levels
- Rates could easily move higher or lower, but given the nearness to all time lows, there's generally more risk than reward regarding floating
- This will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn't always mean they're done improving.
- (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario. There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).