October 15, 2014
Mortgage rates went on a truly epic ride today. From the opening bell to the closing bell, the mortgage-backed-securities (MBS) that underlie mortgage rates covered more ground than any other day since at least mid 2011. Direct comparison is an imperfect science in this case because MBS are stratified in different coupons. The stuff that's in fashion at the moment is different than the stuff that was in fashion during past examples of extreme volatility. That's neither here nor there though. The important part is that today was unique and very few days have ever or will ever come close in terms of the big swing back and forth.
The results are positive overall, but with decided frustrations. The easiest way to sum this up would be to say that bond markets lost more ground today than any other day in more than a year. Fortunately, they'd gained just a bit more before the losses began. In other words, rates ended the day slightly lower, but only after being ridiculously lower earlier today. After just tiptoeing into the high 3's yesterday, some lenders briefly made it to the 3.625-3.75% range before pulling back up decisively to 3.875%. This remains the most prevalently quoted conforming 30yr fixed rate for top tier scenarios. That's certainly a victory compared to any other day this year, but potentially disappointing if you happen to compare it to the first half of the day itself.
Loan Originator Perspective
"It's remarkable to see how quickly and dramatically we have moved to the current levels in bond yields and MBS prices. As mentioned before, these types of rallies tend to get a bit overdone before the course changes direction, regardless of the fundamental or technical reasons for the moves. Profit taking should be expected.....once the profit taking has subsided, we will see if this move will be further confirmed. Sectoral rotation is in full effect, therefore pay close attention to the stock market. Best rates in almost 2 years......locking is the intelligent play for all loans closing within 15-25 days. I am only locking loans that are cleared to close." -Constantine Floropoulos, Quontic Bank
"If you've been floating and or waiting and watching for weeks or months, they only reason not to lock in at this time is if you have absolute proof rates are going lower and of course, none of us do. This is an unexpected surprise and I personally think taking all the positive gains is the best decision you can make." -Brent Borcherding, brentborcherding.com
"Huge movement in mortgage pricing today on the back of what appears to be a weakening global economic picture. Stocks sold off sharply and bonds improved dramatically but the volatility was something to behold. Rates for the best scenarios on 30 yr fixed rate product moved decisively below 4% today. My gut feels like it was a good day to lock in these wonderful gains and certainly for closings in the short term. Longer term floating appears to be okay for now but it certainly can't hurt to protect the gains we've experienced today." -Hugh W. Page, Mortgage Banker, Seacoast National Bank
"What a wild day we had today. This morning was the time to lock, hopefully your loan officer contacted you about the huge rally. With most things, what goes up must come down, and that is what happened with bond prices today(as bond prices rise, yields fall) We hit the lowest yields well before noon today and slowly gave back some of the gains. Some lenders did pass along much of the improvements, but the ones that did have already repriced for the worse. If you didn't get an opportunity to lock before the reprices, i would float over night. The lenders that repriced worse took away far more than the price move justified and the lenders that didnt reprice didnt pass along very much of the gains from this morning." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.875
- FHA/VA - 3.375
- 15 YEAR FIXED - 3.125
- 5 YEAR ARMS - 3.0 - 3.50% depending on the lender
Ongoing Lock/Float Considerations
- The hallmark of 2014 has been a narrow range in rates. Too many market participants bet on rates going higher in 2014, and markets punished that imbalance with a paradoxical move lower.
- European markets helped that process along and continue to play a prominent role in keeping US rates lower than they otherwise might be.
- For most of the Summer and early Fall months, rates held a narrow range of 4.125% -4.25% (essentially where the 2014 rate recovery has bottomed out) and finally broke to a 3.875%-4.0% range in mid-October. It's too soon to tell if this is a brief window of opportunity or the continuation of 2014's very gradual improvements.
- As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.' Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy. It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).