June 10, 2013
Mortgage rates continued higher today, further extending the push into fresh 15-month highs confirmed on Friday. The secondary mortgage market didn't lose any ground by the end of the session, but volatility trading conditions during the day, along with other factors, kept lenders more defensive (in that rates are higher than they would be if markets were FLAT at current levels). The weakness wasn't enough to change the Conventional 30yr Fixed best-execution rate of 4.125%, but it should be noted that there is a wider than normal discrepancy between lenders in terms of how rate sheets have changed from one day to the next.
Here again, the variations in rates between lenders is also a symptom of the same factors pushing rates higher today, despite stable prices in the MBS market ("mortgage-backed-securities"). Although MBS have the most direct effect on lenders' rate sheets, there are other factors as well, and we're seeing several play out at the same time today. Volatility is the key component and it will always cause wider margins as lenders are forced to account for a wider range of probable outcomes.
Today adds the more specific component of the monthly settlement process for the MBS coupons that are most relevant to rates. MBS are separated not only by rates but also by vintages. The smallest discreet vintage is monthly, in that there is a specific bucket of loans of a certain type being filled for delivery each month. Once the bucket is filled, attention shifts to the next bucket on the line.
In this case, all Fannie and Freddie 30yr fixed MBS that market participants traded for June delivery will be finalized tomorrow (and are largely finalized already). Rate offerings tend to be more conservative relative to trading levels heading into this settlement process. Given that Treasury yields are the highest in over a year, the volatility, and the uncertainty over the Fed Announcement next week, lenders aren't eager to commit lower rate loans in what still runs the risk of being a risking rate environment.
Loan Originator Perspectives
"No reason to think the steady climb in rates will slow down. Maybe the FED will realize rates have taken off quickly in a short period of time and make a statement to slow the rise or even tilt towards a dip. Locking is the smart move in my book as always." -Mike Owens, Partner, Horizon Financial Inc.
"MBS mixed to flat to start the week, and, while that's better than continued losses, certainly doesn't signal an end to MBS' recent funk. FOMC statement out next week, and bond market appears to have conceded the Fed will continue taper talk. Sentiment is still firmly with MBS sellers, buyers are non-committal and fleeting. I see no reason to float, can't fight market sentiment whether we agree with it or not!" -Ted Rood, Senior Originator, Wintrust Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.125%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.125%
- 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
- Fears about the Fed's bond-buying intentions were proven well-founded on May 22nd when rates rose to 1yr highs after the Fed confirmed their intention to taper bond buying programs sooner vs later
- Just as the pendulum pushed far to the positive side of the rate range in April, the opposite swing occurred in May (now the worst single month for rates on record since 2008)
- (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).