May 21, 2013
Mortgage rates finally caught a break, moving just slightly lower for only the second time this month. For some, the drop in rates may be too little too late as it still doesn't put much of a dent in the losses suffered in May. Best-execution for Conventional, 30yr Fixed Loans is still between 3.625% and 3.75%, and we noted a few lenders who were priced significantly worse than yesterday despite the majority being moderately improved.
The leading candidate for the root cause of all the recent volatility is the general disposition of the Fed toward QE3, the "quantitative easing" programs responsible for the Fed's large-scale asset purchases. To a large, but unknown extent, QE3 is one factor keeping mortgage rates low because it makes for massive, guaranteed buying demand for mortgage-backed-securities. Extra demand raises prices, and higher prices in MBS allow for lower mortgage rates. Analysts have estimated the effects of QE3 to be anywhere from .5 to 1.0% for mortgage rates.
While it's impossible to know for sure, it's certain that rates would be higher without QE3. The "general disposition" mentioned above, refers to whether or not the Fed will soon begin curtailing the dollar amount of QE3 purchases. There's also uncertainty as to whether or not that would begin in MBS or Treasuries, but decreasing purchases in either would still have a negative effect on mortgage rates. That said, some level of decrease or "tapering" as it's most frequently referred to has probably been "priced in" to rate levels over the past few weeks.
Markets are waiting to see if Bernanke (who speaks in front of the Joint Economic Committee in the morning) or the Minutes from the last FOMC Meeting (released at 2pm in the afternoon) will offer any additional insights as to when and how such tapering might take shape. In general, the greater the shorter the time horizon and the bigger the decrease, the worse it would be for rates. We probably haven't seen rates go quite as high as the worst case scenario would warrant, but there's also plenty of room for rates to bounce back if there's less serious talk of tapering in tomorrow's events. Just like the last instance of a positive day for rates, we can't draw any conclusions about a "bounce," but it's definitely on the table as an equal possibility in the short term depending on how tomorrow goes.
Loan Originator Perspectives
"Finally caught an up day in MBS markets today as Fed speak stoked investor hopes for continued Fed easing. As pronounced and decisive as today's move (+12/32 as of press time) is, it's important to note we have just recaptured yesterday's opening levels. At least the down trend is off the table for now; borrowers and loan officers can breath a short sigh of relief. Still prefer to lock early in the loan process, don't want to gamble much in this market." -Ted Rood, Senior Originator, Wintrust Mortgage
"Would be great if this was a turning point and we were heading lower in rates, but based on the recent moves I have a hard time believing this is nothing more than a headfake. Though FED members have been helping the last couple days with their chatter so maybe they have a feed to MBSLive. Still favor locking until we see 2 positive days in a row and even then floating is for the brave." -Mike Owens, Partner, Horizon Financial Inc.
"The day-to-day volatility continues this week. The two day MBS chart for this week looks like a Six Flags roller coaster, and rates are racing up and down accordingly. This is likely to continue through tomorrow when the FOMC minutes from May 1 are released. The best approach in this kind of volatility for rate shoppers is to set a realistic rate target with your lender, and lock when your target is available." -Julian Hebron, Branch Manager, RPM Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.625%, (3.75% not far from sharing the best-execution space)
- FHA/VA - 3.25% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 2.75-2.875%
- 5 YEAR ARMS - 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- After rising consistently from all-time lows in September and October 2012, rates challenged the long term trend higher, but failed to sustain a breakout
- EU and domestic economic data remain relevant to mortgage rates, but uncertainty over the Fed's bond-buying plans through the rest of the year is causing volatility
- The further we've progressed into 2013, the faster the swings have become
- (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).