September 16, 2014
Mortgage rates experienced their first genuine improvement of the month today. The gains were nothing if not very small, but they ended an uncommonly long 11 business day streak of sideways to higher rates. 4.25% remains as the most prevalent conforming 30yr fixed rate for top tier scenarios with the day-over-day changes being limited to closing costs.
Essentially, the losing streak of the past 2 weeks was the market's way of getting into position for tomorrow's big announcement from the Fed. Market participants have been concerned that the Fed could change their verbiage in such a way as to suggest an earlier eventual rate hike.
This debate has focused on the words "considerable time" which the Fed has been using to refer to how much time would likely pass between the end of asset purchases and the first rate hike. But whether that phrase changes or not, the Announcement will still be scrutinized for any additional clues. There's tremendous potential for volatility tomorrow afternoon. It's a situation where risk-takers could easily be rewarded if the Fed is friendlier than expected. The risk is equally present though, as tomorrow could confirm a new direction for rates and the end of positive trend that's been in place so far in 2014.
Loan Originator Perspective
"There is no denying the safest and most prudent thing to do is lock before the Fed's rate decision to be released tomorrow. Whether that means lock today or tomorrow morning is a complete guess, but I think we'll see a little more selling into the meeting which means locking today could save you a little money. Now if you want to gamble a bit, and you can afford to take some financial risk...I think we start to rally after the Fed meeting tomorrow and get back into our long term range of lower rates ahead. I have zero data to back that assumption up with, and if you feel like taking a risk based on someone you've never met and found on the internet....it could pay off. :-)" -Brent Borcherding, brentborcherding.com
"If you floated overnight, you were greeted this morning with basically unchanged lender pricing. All eyes are focused on tomorrow's FOMC announcement where many expect tweaks to the Feds rate outlook where they promised low rates for a "considerable time". If the rates guidance is left unchanged, i would think we should regain some of the losses from last week. If they remove that line, rates will worsen. I believe they will leave that line in the statement and bonds will be happy. It is risky to float but i feel it will pay off. However, if you like the quote you currently are being offered, nothing wrong with locking. " -Victor Burek, Open Mortgage
"Markets held their collective breath today as tomorrow's FMOC statement and Chairman Yellen press conference looms. It's a virtual repeat of last year's September meeting, when the Fed shocked traders by not tapering QE as forecast. This year the question is how soon (not if) they will raise the overnight rate, and how they will prepare markets for that day. Floating your loan? Make sure your originator has the ability to lock tomorrow when the statement hits. Most lenders should have at least a few minutes to lock existing loans if MBS markets sell off when Fed issues its outlook."-Ted Rood, Senior Originator, tedroodteam.com
"Tomorrow brings Fed day with the release of the Fed statement at 2pm. I don't anticipate rates will budge heading into tomorrow but I do forecast a firework show once the statement is released. I tend to recommend floating into the Fed statement since there is always time to quickly lock before pricing expires. Do make sure your loan officer is watching the statement his finger on the lock trigger. " Manny Gomes, Branch Manager, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.25
- FHA/VA - 3.75-4.0%
- 15 YEAR FIXED - 3.375-3.5
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- The hallmark of 2014 so far has been a disconcertingly narrow range in rates. Too many market participants bet on rates going higher in 2014, and markets have punished that imbalance with a paradoxical move lower.
- As of June, rates are now lower year-over-year, but that's mostly due to rates' path higher in 2013. The current path in 2014 remains sideways, though it has recently approached (but not broken) the lows set in late May
- European markets continue to play a prominent role, generally helping rates in the US remain lower than they otherwise might be.
- From a wider point of view, we're in limbo, waiting for the first significant move away from the narrow range. While top tier rates moved up an eighth of a point in early September, to truly move out of the "narrow range," we'd need to see another .125% higher (best-execution at 4.375%)
- 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).