June 16, 2015
Mortgage rates moved only slightly lower today, belying the amount of positive market movement in the mortgage-backed-securities (MBS) that normally influence lender pricing. Indeed, MBS continue to influence rate sheets more than anything else, but there are always other considerations. These "other considerations" tend not to change very much, day to day, thus leaving MBS as the undisputed king of mortgage rate change motivation.
One of the other considerations is the extent to which lenders expect volatility on the near term horizon. If markets might be exceptionally volatile some time soon, lenders might be more conservative with pricing because volatility costs lenders more to deal with. It's fairly common to see this sort of conservative stance heading into events that are known hubs for volatility. Tomorrow's Fed announcement (and press conference) are two such events.
Even with a bit of a conservative stance, many lenders still saw fit to improve rate sheets in the middle of the day as underlying markets improved. Some lenders even lowered rates more than once. But before you get too excited, understand that we're talking about very small adjustments to the closing costs associated with prevailing rates, and NOT the actual contract rates themselves. In other words, if you were being quoted 4.125% yesterday, you would almost certainly still be quoted 4.125% today, but with slightly lower closing costs or higher lender credit, as the case may be.
When it comes to tomorrow, take a cue from lenders and assume that things can go either way, and forcefully so. There's a lot at stake in the coming months with respect to Fed policy and rates. While the Fed's rate hike doesn't directly affect mortgage rates, it can and will have an immediate, indirect effect on the broader bond market. We're not expecting the Fed to hike tomorrow, but even if Yellen merely says something that seems to confirm a September rate hike likelihood, it will be a big deal. If you don't lock your loan before the Fed (2pm eastern, tomorrow), don't expect to be able to efficiently lock it after 2pm if rates are rising unless you already have a game-plan with your lender.
Loan Originator Perspective
"It's been "watch and wait" day today, as markets prepare for tomorrow's Fed Situation Report and the follow-up press conference with Chairwoman Yellen. In my view, it would take a remarkably dour Fed view to push rates down substantially, and that's not likely. Best case scenario may be that we stay in this range until the EU/Greece conflict finally comes to a head. Floating borrowers need to have an honest conversation with their loan officers about their goals, and the plan should rates spike higher tomorrow." -Ted Rood, Senior Originator
"I can’t tell if I feel like it’s Christmas Eve or the day before going to a new school that you’ve heard terrible things about. Tomorrow is the end of the Fed’s June meeting. We have the announcement and a press conference with a Q&A. And just for good measure both our 10 year bond and the German Bund are hanging around right at key support levels. A lot of stored energy looking for some direction for lift off one way or the other. I’m very cautious for now and feel locking is prudent. I may have a different answer in 24 hours from now, but would you be more upset if your rate goes up 1/8th percent or down 1/8th percent? That’s the question to ask yourself overnight. " -Jeff Anderson, Loan Officer, Salem Five Mortgage, LLC
"It is highly risky to float. Investors are on edge regarding the FOMC statement due out tomorrow with its accompanying information such as dot diagram indicating Fed members view on where the Fed Funds rate will be over time. If that is bullish, indicating higher rates sooner, mortgage rates will take a hit and move higher regardless of what is happening in Europe. The Euro drama might ease some of the pain, but the risk of higher rates far outweighs the possibility of rates moving lower." -Victor Burek, Open Mortgage
"Tomorrow is FED day and as always I tend to like to float into the policy statement for it is released after rates are issued so you can quickly lock should rates begin to rise. Keep your eye on the 10 year yield following the release at 2pm and make sure to have your loan officer on the phone as the policy is released. IF the 10 year starts to go up LOCK, If it begins to drop you can float and hopefully catch a re-price for the better." -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.125%-4.25%
- FHA/VA - 3.75
- 15 YEAR FIXED - 3.25-3.375%
- 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.
- It's a highly uncertain time for global financial markets. There is much debate over whether or not the global economy is turning a corner, thus justifying a widespread move to higher rates. That's made 2015 significantly more volatile than 2014 for markets. This means lender rate sheets may change appreciably from day to day, and sometimes even several times in the same day.
- Bottom line: European Quantitative Easing helped push global rates to all-time lows in April. Now, the big risk for mortgage rate watchers is that we might have turned a long term corner. That risk is being compounded by speculation about the Federal Reserve raising rates by the end of 2015.
- May and June have amounted to the 2nd major move higher bounce so far this year. Every time this happens, we have to consider the possibility that this will be a big-picture, long-lasting correction. Until such a thing can be ruled out, Locking makes far more sense.
- 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).