July 10, 2013
Mortgage rates moved higher today, taking them back in line with Monday's offerings on average. The weakness came in two stages. The first round of volatility in the Secondary Mortgage Market arrived in the middle of the time frame during which most lenders release rates. That meant that some lenders out earlier were forced to recall rate sheets to adjust for changes in the market. Other lenders were just higher out of the gate. Again in the afternoon, rates moved higher after the Fed released the minutes from their most recent policy meeting. Most lenders repriced negatively, which raised costs for existing rates and in some cases, raised rates themselves depending on the scenario. In terms of best-execution, 30yr fixed, conventional loans are still hanging on to 4.625%, but some borrowers may have found 4.75% to be better bang for the buck after the reprices (meaning the higher payment was offset by decreased closing costs).
The day ended in very abnormal fashion, and herein lies its silver lining. During an event that was unrelated to today's Fed Minutes release, Bernanke made a brief speech and fielded questions from reporters. The Chairman characterized the unemployment rate of 7.6% as potentially overstating the health of the economy and that if markets tightened to the point that they affected employment, the Fed would have to "push back against that." He also noted that all the Fed governors are committed to defending the inflation target from below and above, reiterating something Fed President Bullard said in June.
Defending inflation against falling and "pushing back" against labor market weakness implies more asset purchases, though other tools can be employed. Markets were receptive and the mortgage-backed-securities (MBS) that underpin mortgage rates began rallying (MBS "rallies" connote lower rates). The abnormal part of all this is that occurred so late in the day that domestic markets didn't have much of a chance to react. Early after hours trading is currently pointing to a stronger start tomorrow--much stronger at the moment. The caveat is that it's not uncommon to see substantial movement in the overnight hours that's subsequently undone the next morning. I only mention it this time because it's bigger than normal and because markets didn't have much time to react today. Bottom line: worse rates today, but hope for tomorrow.
Loan Originator Perspectives
"MBS markets were fixated on Fed statement and Bernanke Q&A this PM, and the initial reaction was not kind. We regained some ground during his press conference, will be interesting to see where we're at tomorrow once market makers return to work. Certainly don't expect us to recover all our recent losses, those hoping for a quick return to rates in the 3's are going to have a long wait." -Ted Rood, Senior Originator, Wintrust Mortgage
"Constant volatility makes it very difficult to determine direction in the present environment. Emotions tell us it should get better, and perhaps Monday & Tuesday confirmed all the relief we will get, but today's movement is certainly discouraging at the least. Following the Bernanke's Q&A we may be in for a bumpy ride.....some things sounded bullish for MBS, others not so much, we must wait and see how traders interpret the dialogue. The consensus around here is to lock at origination. " -Constantine Floropoulos, Quontic Bank
Today's Best-Execution Rates
- 30YR FIXED - 4.625%
- FHA/VA - 4.25% -4.75% (depending on lender buy-down structure)
- 15 YEAR FIXED - 3.75%
- 5 YEAR ARMS - 3.0-3.375% 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
- Rates Markets "broke down" following that, as traders realized just how much buy-in there was to the ongoing presence of QE. These convulsions led to one of the fastest moves higher in the history of mortgage rates and market participants have not been eager to be the among the first explorers to head back into lower rate territory until they're sure they'll have some company.
- (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).