March 26, 2015
Mortgage rates rose rapidly today, almost completely erasing the improvement following last week's Fed Announcement. This is especially ironic considering most major media outlets are running Freddie Mac's weekly mortgage rate survey headline. Because that survey receives most of its responses on Monday and Tuesday, it fully benefited from the stronger levels earlier in the week after having totally missed out on last Wednesday and Thursday's big move lower. As such, the headlines suggest that rates are significantly lower this week. That was certainly true on Tuesday afternoon, but rates have risen roughly an eighth of a point since then. That's a big move considering we've gone entire months without moving more than an eighth.
Specifically, what had been 3.625 to 3.75% is now 3.75 to 3.875% in terms of the most prevalently-quoted conventional 30yr fixed rates for top tier scenarios. The upfront costs associated with moving down to 3.75 from 3.875% are still quite low. If a borrower prefers paying a bit more upfront in exchange for lower payments, it's worth looking into. The breakeven time frame is between 4 and 5 years for most lenders (where the monthly payment savings supersede the additional upfront cost).
Yesterday, we discussed the fact that the move higher was strong enough that it shouldn't be disregarded, but that it would take another day of similar weakness to confirm. Instead, today ended up being significantly weaker. This wasn't due to trading levels in markets as much as it was simply lenders getting caught up with a quick market move. In fact, apart from being a bit more volatile, today's market weakness is almost exactly the same as yesterday's.
Loan Originator Perspective
"If you missed yesterday morning's great opportunity to lock, your pricing as of 2pm eastern today is considerably worse. The benchmark 10 year note is putting up a fight to hold below 2.00. New supply of treasuries are out of the way and tomorrow brings us the final reading on 4th quarter GDP. Since this is very backwards looking, it probably wont have much if any impact on the markets. By time you read this, the damage of today's continued selling will already be priced in. At this point, i would float over night and see what tomorrow brings."-Victor Burek, Open Mortgage
"After moving lower for several days and threatening to break through to even lower lows it appears markets threw up a wall here and we've sold off for 2 consecutive days. In the face of more frequent "Fed Speak" about "normalizing" rates along with the failure to follow through to lower lows I believe caution is in order. I would be locking up everything right now as long as it was closing in less than 60 days until we see any sort of reversal in trend." -Hugh W. Page, Mortgage Banker, SeacoastBank
"Well, our post Fed statement rally has officially left the building, and rates continue to rise quickly. The trend is not our friend. We'll need a shift in market sentiment to even hold current levels, much less regain the ground lost since Tuesday. Floating borrowers need to assess their risk tolerance and goals with their originators. This sell off isn't a head fake, and could well continue. I'll be locking all loans closing in 30 days or less at origination. Thanks to MBS Live, my current pipeline is 100% locked!" -Ted Rood, Senior Originator
"Last couple days have been rough. Again, the guidance generally given has been to protect loans with limited time. Bond markets had nearly 2 weeks of positive moves, the last couple of days remind us how quickly things can change. Loans inside of 30 days should be considering locking, albeit I think after consecutive sell-off days like we have experienced at the very minimum we should see some relief to close the week out tomorrow. Again, loans inside of 15 days should have been locked, if you have not locked you may as well float into tomorrow, in my opinion. Locking today is a panic move. Loans with 30+ days to close have time on their side, however if you like the rate and costs associated with your transaction you should lock your loan and sleep easy." -Constantine Floropoulos, Quontic Bank
"Today's second poorly received auction has created another post auction sell off and bonds have now violated the up trend they have been in. This does not necessarily mean rates will continue to increase but betting on lower rates in the short term is no longer safe. If your stomach is turning because you are now being quoted rates .125%- .25% higher than available at the beginning of the week go ahead and lock and end the pain. If you have the stomach to stay in it and more importantly weeks before closing waiting things out in case this is a profit taking breather in a longer term move lower in rates may payoff." -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.75-3.875
- FHA/VA - 3.5
- 15 YEAR FIXED - 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 was Europe and the introduction of European quantitative easing.
- With European QE having now begun, we're on high alert for a big picture bounce in European economic data, sentiment, growth, and rates. The more it looks like such a bounce is taking hold, the greater the risk that domestic bond markets and mortgage rates will also experience a big bounce higher. There was a possibility that the bounce occurred in February, but European bonds got back to the task of improving in March. This has helped calm the domestic bond market's move toward higher rates.
- While more immediate, bigger-picture disaster has been averted, it's still a highly uncertain time for global financial markets. On the one hand, some believe we're in the midst of a race among world central banks to devalue currencies and lower interest rates. Others believe that the global economy is turning a corner and rates will grind higher. That creates a lot of volatility, and volatility is bad for mortgage rates. One result is that they have a slightly harder time keeping pace with movement in Treasuries. That can be good or bad, depending on which way markets are moving. The other result is that there really is no way to be sure that today's rates will be available a few hours from now. They could get better or worse, but the point is that there's more change and movement in the mortgage market so far in 2015.
- 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, conventional 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).