February 13, 2013
Mortgage rates surged higher at their quickest pace since late January on Wednesday eclipsing the previous highs of the year seen around the same time. For many lenders--and for the first time since mid 2012, this takes Best-Execution for 30yr Fixed, Conventional Loans back up to 3.75%. Some lenders remain at 3.625% and lower rates are still quite viable in certain situations. As always, remember that what we refer to as "best-execution" can vary depending on personal preferences. Also, it's important to remember (when we're talking about Best-Ex being at different levels between lenders) that it doesn't necessarily mean the lender with the lower best-ex is better priced than another--simply that the their adjacent rate offerings (usually .125% higher and lower) are not as efficient in terms of borrowing cost vs payment.
(What is A Best-Execution Mortgage Rate?)
Treasury yields aren't any higher today than they have been at their worst levels of the year, but they're close. This "closeness" is disconcerting for the mortgage rate market and the MBS (mortgage-backed-securities) that serve as its foundation. MBS are separated by 0.5% increments with roughly a 0.5% range of many loans being "eligible" to become part of a particular security. Recently, the Fannie Mae 3.0% Coupon (which is comprised mainly of newly originated loans of 3.25% to 3.75%) has been the king of the hill in terms of MBS market activity.
Think of this like a "party at 3.0 and everyone's invited." As rates rise, investors grow increasingly concerned that the party currently going on at 3.0% will move to 3.5 (the next house on the block), and all of the "3.0 Party" memorabilia they ordered will no longer be cool and useful (hats, t-shirts, drink holders, you name it... they all say "3.0" on them). So what we're seeing now is sort of like a fire sale on that 3.0 merchandise on that chance it will no longer be in fashion if the party moves to 3.5.
The prices of the 3.0 coupon MBS crossed into a new low today, and one that they HAD BEEN doing a decent job of holding, despite recent weakness. That sort of "breaking of the floor" can coincide with an extra bit of momentum lower in prices, especially if interest rate benchmarks like Treasuries are under pressure as well. Bottom line, investors are as concerned as they have been about the LONG stay at the 3.0 party potentially shifting toward the 3.5 party. Accordingly, lenders rates are as high as they've been since 3.0s began dominating the party scene.
Loan Originator Perspectives
"Rates continue their upward spiral, seemingly regardless of concerns over the sequester or any pending Euro drama. We've had a lock sentiment since December, and that's turned out to be a wonderful thing. The lesson here is that both borrowers and originators alike need to look at present reality, not what was, or what they hope will be!" -Ted Rood, Senior Originator, Wintrust Mortgage.
"At some point the stock market will have to take a breather which we hope would direct money back into bonds. A nice 10% correction which hasn't happen in over a year would be helpful. Rates are still good. If you are waiting for a another drop then you may miss the opportunity. I'm advising to lock, as usual, and be done with it. There is so little gain and much to lose right now." -Mike Owens, Partner, Horizon Financial Inc.
Today's Best-Execution Rates
- 30YR FIXED - 3.625%
- FHA/VA - 3.25% - 3.5% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 2.875%- 3.00%
- 5 YEAR ARMS - 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates have risen moderately from their all-time lows, making for relatively increased reward for floating at the expense of greater risks of loss.
- Rates could easily move higher or lower, and unscheduled, unexpected events can ultimately have the most say in the direction.
- Near term risks in 2013 include the upcoming debt-ceiling debate in Washington as well as the Fed's policy outlook regarding securities purchases.
- Prospects For Extending The Debt Ceiling Deadline currently seem to be preventing a move back down in rate. Passage of such legislation could further support a rising rate environment.
- (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).