June 20, 2013
Mortgage rates are reprising past trauma, now matching the scope of the late 2010 sell-off, with the past two days matching the scope of Black Wednesday's sell-off. "Selling" in this case, refers to the Mortgage-Backed-Securities (MBS) that most directly affect rates. As MBS prices fall, rates rise. The faster this happens, the worse it is for rate sheets, and despite the month and a half of selling, the past two days have been surprisingly abrupt for lenders. Rate sheets have taken the most profound hits we've seen on back to back days (past examples were more concentrated on one of the two days). Conventional 30yr Fixed best-execution is quickly up to a staggering 4.375%-4.5%, though we'd note that there's even more variation between lenders as volatility magnifies the effects of different pricing strategies.
Today's economic data had precious little effect on trading levels, adding to the sense that it's going to take official employment data on July 5th, a change in tone from the Fed, or an unexpected tape-bomb style headline to convince markets that the Fed won't begin curtailing asset purchases in September. While that continues to be the case, interest rate movements continue to be a risk. We'd like to say "we've moved high enough, fast enough that we'll probably be able to dig in and hold some ground here," but that's not safe yet. Market participants themselves, let alone mortgage lenders, are still feeling out the post-Fed-Announcement environment. There's no reason rates can't go even higher just because they've moved so high, so fast.
More background on the abrupt movements:
May 22nd: Why Did Mortgage Rates Skyrocket Past 2013 Highs on Wednesday?
May 28th: Mortgage Rates Vault Catastrophically Higher
June 19th:Mortgage Rates Annihilated; Brief History of All-Time Lows
Loan Originator Perspectives
"The recent events leave me speechless. In my 10 years in the industry I have never seen a meltdown this quickly and dramatically. We cannot control the market, but we can control our emotions. Closing within 30 days should be locked up. 30-60 days should consider locking as well. Any technical or fundamental basis for floating has been diminished. Is there a saving grace? Perhaps if we continue to see liquidations in commodities & stocks (domestic & foreign) we may benefit from a quick trade, but again, the table has been st for higher rates. Soup, salad, & appetizers are served, main course on it's way....question is how is your digestive system?" -Constantine Floropoulos, Quontic Bank
"Our jumbos didn't rise as quickly since the agency MBS selloff yesterday, so there have been some locking opportunities for loans above $417,000, but loans up to $417,000 are up definitively." -Julian Hebron, Branch Manager, RPM Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.25%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.375%
- 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
- Uncertainty over the Fed's bond-buying plans is causing immense volatility in rates markets and generally leading rates quickly higher
- Fears about the Fed's bond-buying intentions were proven well-founded on May 22nd when rates rose to 1yr highs after the Fed indicated their intention to taper bond buying programs sooner vs later
- The June 19th FOMC Statement and Press Conference confirmed the suspicions. Although tapering wasn't announced, the Fed made no move to counter the notion that they will decrease bond buying soon if the economic trajectory continues
- (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario. There are many reasons a quoted rate may differ from 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).