February 20, 2013
Mortgage rates avoided the larger-scale swings that they might have considering the important data on tap today. Instead, they merely began the day just barely into their worst levels in about 7 months (depends on the lender, some are improved, others unchanged) and, for the most part, stayed right there despite a good bit of volatility surrounding today's big new. While many lenders are still at 3.625% in terms of Best-Execution for 30yr Fixed, Conventional Loans, 3.75% is increasingly prevalent.
(What is A Best-Execution Mortgage Rate?)
Today's big-ticket event was the release of the Minutes from the most recent Fed meeting. Markets already had the official statement produced by that meeting as of January 30th, but the Minutes offer more granular details on the undercurrents that could affect policy in the coming months. Of particular interest to the mortgage market are the conditions under which the Fed's MBS buying program will continue.
MBS are the "mortgage-backed-securities" that most directly influence mortgage rates. Despite a moderate amount of controversy surrounding the creation of new money in order to buy MBS, the so-called QE3 (shorthand for the third round of the Fed's quantitative easing measures) has had an unquestionable benefit for mortgage rates, ushering them to their all-time lows shortly after the announcement of the program. Because rates are driven by MBS, and because Fed policy plays a pivotal role in MBS markets, nailing down current and future probabilities surrounding Fed MBS buying is a critical component in determining how rates will move.
Markets were heading into today's Minutes release prepared for new information regarding a gradual shift in the Fed's stance. Such a shift--some would argue--was alluded to in the previous iteration of Fed Minutes that introduced the notion that quantitative easing wasn't quite as unanimous as previously conveyed and that it might not last as long as previously assumed. While this didn't change any expectations about the near-term plans at the Fed, it did get markets thinking about what an eventual exit might look like.
At the end of the day, we didn't end up getting any new and shocking information, but neither did we encounter reason for rates to stampede back in the other direction. Considering that MBS markets ended up in slightly positive territory, the day was strangely unsatisfying. Lenders were in defensive stances heading into the afternoon news, not to mention that MBS were weaker in the morning.
What most mortgage rate watchers are left with are rates that were slightly higher out of the gate and no changes in the afternoon. That said, some of the more conservatively priced lenders did release new and improved rate sheets late in the day, but they amounted to mere tokens. In the big picture, rates are mostly as high as they've been since Summer 2012.
Loan Originator Perspectives
"Mortgage markets dodged a potential bullet today as the Fed released the minutes from their last meeting, but there were no bombshells for MBS. Still some FedSpeak on the length and amount of their MBS purchases (which are the reason rates are at current low levels), but nothing that riled the market as last minutes did. We've still seen 3 down days for every up one in the past 6 weeks, but the moves have been incremental, not sudden. If you're floating, think you're gambling against the house. Some folks like to do that, know I don't." -Ted Rood, Senior Originator, Wintrust Mortgage.
"MBS and rates closing even today after the January 30 Fed meeting minutes were released is important because the minutes basically revealed the same thing as the December 12 minutes released January 3--which is that Fed MBS buying to keep rates low won't last forever. That worry caused rates to rise .375% from January 3 to present. But for now markets aren't as spooked as they were early January, and rates are holding. Perhaps it's because the next big macro event is elections in Italy this weekend. That will bring eurozone debt woes back into the spotlight, and that worry could help maintain MBS and rate levels. Nevertheless, MBS and 10yr Note both still at precarious technical levels, so still have a lock bias for purchase clients in contract to buy homes and for refi clients who have provided all of their documentation to enable a full pre-approval. " -Julian Hebron, Branch Manager, RPM Mortgage
"We really got no new guidance today following the FOMC minutes. The 10yr treasury is still confined to a range but ended the day in the lower part helped along by a stock sell off into close. If you have been floating, i would continue to do so and re evaluate your position tomorrow." -Victor Burek, Open Mortgage.
"Still recommending to lock your rate when the deal presented meets your needs. Little to gain, but much to lose by floating." -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).