May 24, 2017
Mortgage rates moved moderately higher this morning, beginning the day at the highest levels in roughly 2 weeks. Afternoon events helped underlying bond markets bounce back, however, resulting in several lenders issuing positive reprices. This means that some lenders are in slightly better shape vs yesterday while others remain in worse shape. All things being equal, any lender who did not adjust rate sheets this afternoon would have incentive to offer bigger improvements tomorrow morning.
The key consideration for interest rates was today's release of the Minutes from the most recent Fed meeting. The Minutes provide a more detailed account of the meetings where the Fed officially sets monetary policy. The policy statement is several hundred words while the Minutes are several thousand words. It's in the Minutes that investors find clues as to how the Fed may set policy in the near future.
Today's Minutes helped to ease some investors' fears about how the Fed will approach the topic of "reinvestments" later this year. Under the reinvestment policy, any principal payments on the Fed's bond portfolio are reinvested back to the bond market in question. In other words, if a bunch of mortgage loans are lumped into a bond owned by the Fed, the monthly payments on those loans contains a certain amount of principal and interest. The Fed is currently taking the principal portion and buying more mortgages with it. In the future, those amounts will reduce. Lower buying demand for mortgages equates to higher rates.
With the Fed's reinvestment plans being a bit friendlier than expected, there is still justification for risk-tolerant borrowers to float and wait for certain overhead ceilings before being forced to lock. Yesterday's momentum made it seem like that justification was just about to run out. Simply put, it looked like rate momentum was shifting higher, but now that shift may be on hold.
Loan Originator Perspective
Locking below 2.25 looks like a good idea in retrospect, I hope you did. Now that we're over 2.25 you need to consider 2.42 as a short term worse case. The more time we spend over 2.25 the more likely a return to 2.42 is. With that in mind float cautiously. -Jason Anker - Sr. Loan Officer
Bonds caught a decent boost from today's Fed minutes, and several lenders improved their rates this PM. We still haven't regained the ground lost since last week, but it's nice to post gains after two days of losses. Bottom line, we're still "in the range", and there's no clear trend towards higher/lower rates. Happy with your pricing? Lock it up, and get ready for the weekend. -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 4.00%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- Investors were relatively convinced that the decades-long trend toward lower rates had been permanently reversed after Trump became president, but such a conclusion would require YEARS to truly confirm
- Instead of continuing higher in 2017, rates instead formed a narrow, sideways range, and held inside until April. Investor perceptions are shifting such that fiscal reforms and other policy developments will need to live up to expectations in order to push rates higher. Geopolitical risks would also need to avoid flaring up (more than they already have)
- For the first time since the election, we're in a rate environment where you wouldn't be crazy not to lock at every little opportunity/improvement. Until/unless it's broken, the highest rates of early-2017 mark the ceiling, and we're now waiting to see how much lower we can go from here.
- Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are "effective rates" that take day-to-day changes in upfront costs into consideration.