February 18, 2015
Mortgage rates caught a bit of break today, logging the first meaningful improvements in the entire month of February. The gains weren't much better than those seen at the end of last week, but after yesterday's absolute rout, they were a much-needed reprieve. Yesterday saw rates move higher at the fastest pace in more than a year, and any additional weakness today would have threatened to reintroduce 4.0% as a viable 30yr fixed rate quote for top tier scenarios. That figure instead remains at 3.875% with an aggressive lender or two closer to 3.75%.
So is that it? Is that the end of February's relentless weakness? Unfortunately, it's too soon for such conclusions. Way back on February 3rd, I wrote that we were in the midst of a "fairly strong move higher" and that it "should be taken seriously." That continues to be the case, and will only stop being the case when the strong move higher is conclusively defeated. It could turn out to be the case that today is a turning point in that regard, but we'll need more confirmation before considering February's uptrend to be defeated.
On a final note, the source of today's movement also suggests patience in assigning significance to it. Today's strength followed the release of the Minutes from the most recent FOMC meeting. That meeting produced a statement that markets read as a bit harsh when it came to the level of accommodation the Fed was targeting. Part of yesterday's rotten rate move was fear that today's Minutes would reinforce the Fed's disinterest in an accommodative stance. Instead, the Minutes showed a Fed that was thinking more in line with what markets were expecting back at the end of January.
That's all well and good, but this sort of news is a course correction in the bigger picture unless accompanied by a separate move driven by the "stuff" that's primarily motivating markets. Almost all that "stuff" is European. As February ticks down, there will be more for markets to digest with respect to the situation between Greece and it's EU creditors. That's why we need to be patient in assuming today's Fed news will turn rate momentum around, because Europe has the biggest vote right now, and it's yet to be definitively cast.
Loan Originator Perspective
"Mortgage Rates have started to rally this afternoon after the Fed's statement. The Fed is taking a less aggressive stance towards raising rates in 2015, due to a sluggish but growing economy, global unrest and low inflation. Today's move following the statement gives me optimism the selling over the last few weeks was simply positioning before this announcement. I would feel comfortable floatin day to day right now as we work towards getting back some of these losses." -Brent Borcherding, brentborcherding.com
"Finally, the selling is over. Very dovish minutes from the last FOMC meeting has sparked a rally in bonds. As of 3pm eastern, only 1 lender has passed along the gains, even though the current coupon FNMA 3.0 is up about 50 basis points! Typically lenders reprice worse if only down 16 basis points...quick to take, slow to pass along. My recommendation would be to float all loans overnight to not only allow time for lenders to pass along the gains, but to also see if the gains can be extended. " -Victor Burek, Open Mortgage
"Today’s FOMC Minutes are having a positive effect on rates so far this afternoon with a handful or price improvements reported already. If we can hold current levels this may be the beginning of a turning point. I would lean toward floating for now in order to give this potential reversal some time to play out. The hope is that with the FOMC minutes behind us investors will see current levels as an attractive entry point." -Jason B. Anker, Vice President- Loan Officer at Salem Five
"Mortgage bonds finally caught a break today and rallied following the release of the Fed minutes. The market was bracing for a hawkish report and cheered when a more dovish report delivered. Some lenders may reprice this afternoon while others will only reflect the gains in tomorrows rate sheet. If you were caught off guard while floating and need to lock waiting for tomorrow could land you better pricing." -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.75-3.875
- FHA/VA - 3.25-3.5
- 15 YEAR FIXED - 3.00-3.125
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- 2015 began with a strong move to the lowest rates seen since May 2013. The catalyst has been and continues to be Europe.
- European bond yields trended constantly lower in 2014, thus playing a prominent role in keeping US rates lower than they otherwise might be. Many feel that Europe will continue to slide until their central bank engages in US-style quantitative easing. Some see this happening in early 2015. In any event, we're looking for a turn in Europe, first and foremost, before worrying about the longer-term trend in bond markets being at serious risk of reversing.
- It's impossible to know when Europe will turn a corner, and even then it's only the sort of thing we'll be able to observe in hindsight. That means every head-fake toward higher rates runs the risk of developing into a longer term rise, even if those risks vary greatly in terms of probability. Clients with longer term time horizons and who otherwise don't mind losing some ground in exchange for the chance at locking even lower rates are the only ones who should float. Clients who must close by a certain date or who can't afford to lose any ground on rates should generally be locking even though the longer term trend has been in their favor for over a year now.
- 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).