Posts Tagged ‘mortgage rates’

We're back to and maybe even setting new year-to-date mortgage rate lows right now. These positive developments follow a short period of stagnation where volatility in the secondary mortgage market kept us on edge, but never really amounted to much on rate sheets. Loan pricing has drifted mostly sideways since setting new YTD lows on June 8th. And even though we didn't have far to travel, we're back to those lows again. And maybe even teetering on lower lows....

SEE A CHART OF NEW YTD RATE LOWS

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.50%. Some lenders may be quoting 4.375%, but that offer is aggressive and will likely carry increased closing costs in the form of origination fees.  These costs could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution"  is 4.25%.  15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.125% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

PREVIOUS GUIDANCE:   This is as good as it's been all year. Since the middle of November really.  If you're on a short lock/float timeline (15 days), now is a good time to considering locking. While a few sessions of continued loan pricing rallies could lead to a lower overall note rate offer, we've been here before (recently) and failed to see investors commit to a sustained rally in the bond market. Our long-term outlook still supports the case for lower rates though, however until we see investors display a commitment to rally, we will be reluctant to advise floating in the short-term, especially with volatility only 2-days behind us.

CURRENT GUIDANCE:  As volatility continues in the secondary market, we remind rate watchers that lenders are known to price loans from a defensive stance when the broader bond market is in limbo. It might seem safer to float when lenders are defensive by default,  especially if you're able to act quickly and are somewhat flexible with respect to the risk of slightly higher closing costs, but floating is really best reserved for those operating on a longer-term timeline. This creates a buffer to allow for corrections when/if the market moves in an unfavorable direction. While a few sessions of continued loan pricing rallies could lead to a lower overall note rate offer, we've been here before (as recently as Friday) and failed to see investors commit to a sustained rally in the bond market (today).

THE WEEK AHEAD:  Indecisive Attitudes Dictate Short-Term Directionality. Greece Headlines, Treasury Auctions  and the End of QEII. Read more about indecisive attitudes HERE.

----------------------------

"Best Execution" is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process

We're back to and maybe even setting new year-to-date mortgage rate lows right now. These positive developments follow a short period of stagnation where volatility in the secondary mortgage market kept us on edge, but never really amounted to much on rate sheets. Loan pricing has drifted mostly sideways since setting new YTD lows on June 8th. And even though we didn't have far to travel, we're back to those lows again. And maybe even teetering on lower lows....

SEE A CHART OF NEW YTD RATE LOWS

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.50%. Some lenders may be quoting 4.375%, but that offer is aggressive and will likely carry increased closing costs in the form of origination fees.  These costs could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution"  is 4.25%.  15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.125% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

PREVIOUS GUIDANCE:   This is as good as it's been all year. Since the middle of November really.  If you're on a short lock/float timeline (15 days), now is a good time to considering locking. While a few sessions of continued loan pricing rallies could lead to a lower overall note rate offer, we've been here before (recently) and failed to see investors commit to a sustained rally in the bond market. Our long-term outlook still supports the case for lower rates though, however until we see investors display a commitment to rally, we will be reluctant to advise floating in the short-term, especially with volatility only 2-days behind us.

CURRENT GUIDANCE:  As volatility continues in the secondary market, we remind rate watchers that lenders are known to price loans from a defensive stance when the broader bond market is in limbo. It might seem safer to float when lenders are defensive by default,  especially if you're able to act quickly and are somewhat flexible with respect to the risk of slightly higher closing costs, but floating is really best reserved for those operating on a longer-term timeline. This creates a buffer to allow for corrections when/if the market moves in an unfavorable direction. While a few sessions of continued loan pricing rallies could lead to a lower overall note rate offer, we've been here before (as recently as Friday) and failed to see investors commit to a sustained rally in the bond market (today).

THE WEEK AHEAD:  Indecisive Attitudes Dictate Short-Term Directionality. Greece Headlines, Treasury Auctions  and the End of QEII. Read more about indecisive attitudes HERE.

----------------------------

"Best Execution" is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process

We're back to and maybe even setting new year-to-date mortgage rate lows right now.

These positive developments follow a short period of stagnation where volatility in the secondary mortgage market kept us on edge, but never really amounted to much on rate sheets. Loan pricing drifted mostly sideways since setting new YTD lows on June 8th. And even though we didn't have far to travel, we're back to those lows again. And maybe even teetering on lower lows....

In the chart of Consumer Rate Quotes below, if the line is moving up, closing costs are rising.  If the line is moving lower, costs are getting cheaper. Sideways mortgage rate behavior followed by an abrupt drop followed by another spell of mostly sideways activity can be seen when looking closely. This spell of sideways activity has taken place near the most aggressive rate quotes of the year. Today is just as good a day as June 8th to lock. That is unless you're waiting for 4.25% (still).

See the RED CIRCLES.BEST LEVELS SINCE THE MIDDLE OF NOVEMBER.

The chart above compares the average origination costs (as a percentage of loan amount) for several available mortgage note rates as quoted by the five major lenders. Each line represents a different 30 year fixed mortgage note rate.  The numbers on the right vertical axis are the origination closing costs, as a percentage of your loan amount, that a borrower would be required to pay in order to close on that note rate. If the note rate graph line is below the 0.00% marker, the consumer may potentially receive closing cost help from their lender in the form of a lender credits. If the note rate line is above the 0.00% marker, the consumer should expect to pay additional points at the closing table to cover permanent buydown costs and origination fees. PLEASE SEE OUR MORTGAGE RATE DISCLAIMER BELOW

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.50%. Some lenders may be quoting 4.375%, but that offer is aggressive and will likely carry increased closing costs in the form of origination fees.  These costs could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution"  is 4.25%.  15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.125% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

PREVIOUS GUIDANCE:  As volatility continues in the secondary market, it's becoming apparent that lenders are pricing loans from a defensive stance.  Lenders are waiting for the secondary market to commit to a directional trend.  With today's high-risk event over, it might seem safer to float if lenders are pricing defensively by default.  And in fact, if you're able to act quickly and are somewhat flexible with respect to the risk of slightly higher closing costs, that can be a valid strategy here, but floating is best reserved for the longer term and most flexible scenarios here.  While there is potential upside even for short term outlooks, it's not likely to ratchet the Best-Execution rate down another 1/8th of a percent quickly enough to be worth the risk.

CURRENT GUIDANCE:  This is as good as it's been all year. Since the middle of November really.  If you're on a short lock/float timeline (15 days), now is a good time to considering locking. While a few sessions of continued loan pricing rallies could lead to a lower overall note rate offer, we've been here before (recently) and failed to see investors commit to a sustained rally in the bond market. Our long-term outlook still supports the case for lower rates though, however until we see investors display a commitment to rally, we will be reluctant to advise floating in the short-term, especially with volatility only 2-days behind us.

A PEEK AT THE WEEK AHEAD: The week begins at a brisk pace with Personal Income and Spending right off the bat at 830 on Monday morning  Soon after we'll be preparing for the week's Treasury auction cycle, starting early this time with $35bn 2s at 1pm. 5’s and 7’s arrive in a similarly early fashion, on Tuesday and Wednesday. While the auction cycle will certainly be one of the week’s focal points, there’s an interesting twist to the calendar of events ahead.... Thursday is the last day of the month, the quarter, the half, and of QE2. Adding a few layers of complexity to that situation will be a diverse line-up of Fed Speakers not to mention the ongoing potential for tapebomb news headlines. Otherwise there’s nothing earth-shattering on the data docket, we get Consumer Confidence, Pending Home Sales, Chicago PMI, Consumer Sentiment and the ISM Manufacturing Index, just to name a few. We look most forward to seeing Consumer Confidence and ISM as these are early indicators of June data to come. Regarding the markets, investors haven't been displaying much directional commitment lately. With benchmark 10-year yields rallying to new YTD lows today (which mortgages did not keep up with), we'll be looking for a confirmation rally early and often next week.

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

----------------------------

"Best Execution" is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.

Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey* for the week ending June 7, 2011.

The Refinance Index ticked up noticeably in the last week, from 2475 to 2883, the highest reading since November 2010.  This is bittersweet as it finally showed some linear connection between falling rates and refi demand...only to have rates rise this week.  Even so, the last time rates fell from 5.0 to 4.5 as they have in 2011, readings around 3000 on the refi index represented the LOW END, moving over 5000 on the index by the time rates hit the same reported level as they did last week. 

Plain and Simple: The same historically low rates are producing only a little more than half the refi demand as last fall, providing a stark picture of the current lending environment.

The Purchase Index was fairly uneventful last week.  Although it rose from 182.9 to 191.1, that puts it right in line with a majority of previous weeks.  In fact, 2 out of every 3 weeks since March have been within 5 points of 190.  Pretty darn stagnant.  With the exception of the horrible levels under 170 in the summer of 2010, we're sideways at the lowest levels in the history of MBA's reporting with a clear pivot point around 210 separating past and present. 

Excerpts from the Release...

The Market Composite Index, a measure of mortgage loan application volume, increased 13.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 24.5 percent compared with the previous week, which included Memorial Day. The Refinance Index increased 16.5 percent from the previous week. The seasonally adjusted Purchase Index increased 4.5 percent from one week earlier. The unadjusted Purchase Index increased 14.2 percent compared with the previous week and was 6.1 percent higher than the same week one year ago.

"Mortgage rates have declined for 8 of the past 9 weeks. Coming off of the Memorial Day holiday, refinance application volume increased significantly, as borrowers jumped to lock in the lowest mortgage rates since last November," said Michael Fratantoni, MBA's Vice President of Research and Economics. "The volume of refinance applications still remains 28 percent below levels seen at that time, as borrowers with an incentive to refinance remain constrained from doing so by lack of equity in their homes."

The four week moving average for the seasonally adjusted Market Index is up 2.4 percent. The four week moving average is up 0.3 percent for the seasonally adjusted Purchase Index, while this average is up 3.1 percent for the Refinance Index.

The refinance share of mortgage activity increased to 70.0 percent of total applications from 67.3 percent the previous week. This is the highest refinance share since January 21, 2011. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 6.1 percent of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.51 percent from 4.54 percent, with points increasing to 1.05 from 0.94 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year average rate since November 19, 2010. The effective rate also decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 3.67 percent, while points also remained unchanged at 1.06 (including the origination fee) for 80 percent LTV loans. This is the lowest 15-year average contract rate since November 5, 2010. The effective rate increased from last week.

*The MBA's loan application survey covers over 50% of all U.S. residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a snapshot view of consumer demand for mortgage loans. In a falling mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out lower monthly payments. If consumers are able to reduce their monthly mortgage payment and increase disposable income through refinancing, it can be a positive for the economy as a whole (may boost consumer spending. It also allows debtors to pay down personal liabilities faster. A trend of declining purchase applications implies home buyer demand is shrinking.

After tearing down "The Wall" last Friday, the mortgage rate rally stalled and went sideways this week.

We'd describe this pause as mortgage rates taking a "breather" in the wake of a 2-month rally.  If you're looking for a deeper explanation, read THIS POST on "auction concessions". The sideways shuffle seen over the past five days serves as a reminder of the threats faced by home loan borrowers when floating a loan on a short-term timeline. The market doesn't always act the way you'd expect it to and rallies don't last forever, investors always end up finding a way to question positive progress, and that generally leads to an unfriendly directional reaction.

Sideways mortgage rate behavior followed by an abrupt drop followed by another spell of mostly sideways movement is apparent in the updated chart of Consumer Rate Quotes below. If the line is moving up, origination costs are rising.  If the line is moving lower, costs are getting cheaper. The rapid decline in costs which occurred last Wednesday was the second stage of "The Wall" coming down. Last Friday "The Wall" completely crumbled. And then Consumer Rate Quotes barely budged this week. Still, mortgage rates haven't been this aggressive since November....

The chart above compares the average origination costs (as a percentage of loan amount) for several available mortgage note rates as quoted by the five major lenders. Each line represents a different 30 year fixed mortgage note rate.  The numbers on the right vertical axis are the origination closing costs, as a percentage of your loan amount, that a borrower would be required to pay in order to close on that note rate. If the note rate graph line is below the 0.00% marker, the consumer may potentially receive closing cost help from their lender in the form of a lender credits. If the note rate line is above the 0.00% marker, the consumer should expect to pay additional points at the closing table to cover permanent buydown costs and origination fees. PLEASE SEE OUR MORTGAGE RATE DISCLAIMER BELOW

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.50%. Aggressive 4.375% quotes are still being reported but will  involve increased closing costs in the form of origination fees.  This could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution"  is 4.25%.  15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.125% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

GUIDANCE:   With  "The Wall" now torn down a path has been paved for mortgage rates to continue on the path toward more improvements. An extended rally will not come without setbacks though. Short-term corrections are to be expected along the way.  That means borrowers working on a shorter lock/float timeline should remain defensive. That point was proven this week. Your main goal is to protect new, lower rate quotes from short-term market fluctuations.  The overall bullish trend is still very much in tact though.  Intermediate to longer-term scenarios are more than justified in floating.

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might ot rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

----------------------------

"Best Execution" is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.

Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process.

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey* for the week ending June 3, 2011.

The Refinance index seems to be stuck around the 2500 level, having risen about 500 points during the 2 month interest rate rally.  The last two times mortgage rates were this low, the MBA’s Refi Index was operating almost exclusively above the 4000 mark.  That was over 7 months ago.  The fact that these rates haven’t motivated more refinance activity speaks to several barriers that continue to prevent borrowers from reducing their monthly payment.

The Purchases Index fell 4.4% to 182.9 from 191.4 and continues to stagnate at very low levels.  In fact, there’s no evidence that they’ve broken the downtrend that began in November 2007 when the index was in the high 400’s.  Since the tax credit expired, the index has been stuck between 160 and 220, languishing in a sideways.

Excerpts from the Release...

The Market Composite Index, a measure of mortgage loan application volume, decreased 0.4 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 11 percent compared with the previous week.  The four week moving average fell from 3.0 to 1.0 per cent.

The adjusted Refinance Index increased 1.3 percent from the previous week (the Refinance Index is not seasonally adjusted but is adjusted for the Memorial Day holiday). The four week moving average is up 2.1 percent, lower than last week’s reading of 3.8 per cent. The refinance share of mortgage activity increased to 67.3 percent of total applications from 65.7 percent the previous week. This is the highest refinance share since January 28, 2011.

The seasonally adjusted Purchase Index decreased 4.4 percent from one week earlier. The unadjusted Purchase Index decreased 15.2 percent compared with the previous week and was 9.0 percent higher than the same week one year ago. The four week moving average is down 1.6 per cent after last week showed a 1.1 pct improvement.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.54 percent from 4.58 percent, with points decreasing to 0.95 from 1.00 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year contract rate since November 19, 2010. The effective rate also decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.67 percent from 3.78 percent, with points decreasing to 1.06 from 1.07 (including the origination fee) for 80 percent LTV loans. This is the lowest 15-year contract rate since October 22, 2010. The effective rate also decreased from last week.

The adjustable-rate mortgage (ARM) share of activity decreased to 6.1 percent from 6.2 percent of total applications from the previous week.

Regarding the barriers that continue to block borrowers from reducing their monthly payments...

Two weeks ago we wrote, "Right now we're witnessing the beginnings of a mini-refinance boom in the primary mortgage market, but there has been little activity in the secondary market that would indicate increased rate locking by consumers." says MND's Managing Editor Adam Quinones. "However, if conventional 30-year rates reach 4.25%, we'd expect to see a mini-boom scenario play out. There is much stored demand in the system as many borrowers missed the boat on record low rates in October and early November. This crowd is waiting in the wings for those rates to return. Whether or not that happens is still very much up in the air"

In reaction to that comment, Ted Rood, a loan originator from MetLife Home Loans added, "One thing to consider regarding refi volume is that HUD effectively ended FHA streamlines over the course of the last year by tightening underwriting guidelines and jacking up monthly MIP fees. After the change, many existing FHA clients have been unable to meet net benefit rules,  even when dropping their rate by 1% or more, since their monthly MIP would double on the new loan. So FHA clients don't get to benefit from lower rates and HUD doesn't get new upfront MIPs from existing clients with clean payment histories who want to refinance".

READ MORE: New FHA MIP Structure to Slow Streamlines

READ MORE: Rents Seen Rising as Poor Credit Hurts Homeownership Demand

READ MORE: Realtors Request Looser Credit Regs as Home Sales Decline

*The MBA's loan application survey covers over 50% of all U.S. residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a snapshot view of consumer demand for mortgage loans. In a falling mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out lower monthly payments. If consumers are able to reduce their monthly mortgage payment and increase disposable income through refinancing, it can be a positive for the economy as a whole (may boost consumer spending. It also allows debtors to pay down personal liabilities faster. A trend of declining purchase applications implies home buyer demand is shrinking.

We are witnessing the second stage of a significant shift lower in home loan borrowing costs. While these secondary signs are encouraging, they are just another step in what might evolve into a sustained rally in the bond market. That second step toward toppling "The Wall" took place today as Best Execution mortgage rates benefited from continued fears that the economy is not recovering at the pace previously thought. READ MORE

UPDATED CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate has fallen yet again.  This time from 4.625% to 4.50%.  In some cases, 4.375% can make sense, but will involve increased closing costs.  This could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution" had been between 4.375% and 4.25%.  Today's improvements put the focus solidly on 4.25%.  15 year fixed conventional loans are now best priced at 3.75%. Five year ARMs are best priced at 3.125% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

PREVIOUS GUIDANCE:  The tone has been generally positive for mortgage rates since April 11^th.  We continue to entertain that it could generally stay that way for even longer, clearly justifying longer term floating strategies.  However, further positive progress can be slow and short term corrections are to be expected.  That means borrowers who are working on a shorter lock/float timeline should remain defensive of new, lower "Best Execution" Mortgage Rate quotes. Your main goal is to protect a lower rate offer from short-term market fluctuations, especially with the high risk event on the horizon in the form of this Friday's Employment Situation Report.  This is the sort of report than can either confirm the recent break lower in borrowing costs, or send them right back to other side of the fence.

CURRENT GUIDANCE: It might seem like it's time to consider "The Wall" as being completely destroyed at this point. Yes, "The Wall" is indeed teetering in its most precarious position this year.  Borrowing costs are certainly low enough to justify that, but the most important confirmation can only be granted by Friday's high-risk event: The Employment Situation Report.  If that data confirms the slower than expected recovery message that has fueled the two-month bond market rally, new improvements will be much less tenuous.  We'd remain defensive even as rates progress lower, preferring the "sure thing" of the best rates of the year today versus the risk of losing them tomorrow.  That assumes either that your time frame is limited or that rates won't recover from any set-backs on the horizon.  Longer term and more flexible scenarios are still justified in floating.

 What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

----------------------------

"Best Execution" is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.

Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process.

Although borrowing costs rose today, the newly updated Best-Execution mortgage rate offering we discussed yesterday remains unchanged.  Unfortunately, the instances of lenders offering these more aggressive "Current Market" quotes are fewer and farther between. 

In short, the wall blocking mortgage rates from continued positive progress began to crack yesterday. Today's price action added a few globs of spackle to those cracks in attempt to keep the wall standing.

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is in a state of flux between 4.75% and 4.625%. Some lenders are already quoting C30 loans at 4.625% with no origination points.  If you are looking to move down from there or merely between the two, you'll be assessing the trade-offs between higher closing costs and lower monthly payments.  This could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution" is also a moving target roughly centered on 4.375% with adjacent rates being logical in some scenarios. 4.50% is a no-brainer for everyone on FHA 30yr loans though.  15 year fixed conventional loans are best priced at 3.875%. Five year ARMs are best priced at 3.25% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

PREVIOUS GUIDANCE:  It seems like only yesterday when we said "we'd want to wait until that wall is broken before departing from our defensive stance."  Well, that was yesterday! And here we are with the proverbial "wall" looking very close to tumbling.  If conditions don't deteriorate tomorrow, our stance becomes a bit less defensive, although we'd continue to caution shorter term scenarios that even an ongoing positive trend is susceptible to periodic pull-backs. The possibility for an intermediate to longer term rates rally remains on the table.

CURRENT GUIDANCE:   First of all, the possibility of an intermediate to longer term rates rally remains on the table for yet another day.  So for all the flexible or aggressive long term scenario people in the audience, you're excused for the day.  As for everyone else, loan pricing deteriorated today, leaving us feeling defensive about recent improvements in the short-run. You should be too.  We saw a good example today of the sorts of pull-backs that can come even in the midst of a predominantly bullish run in mortgage rates.  As we've said in the past, if you're seeing the lower of the two Best-Ex quotes mentioned in the Current Market section, the goal is to KEEP that rate rather than floating for the possibility of slightly lower closing costs.

 What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

----------------------------

*"Best Execution" is the most efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.

Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process.

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending April 22, 2011.

The MBA's loan application survey covers over 50% of all U.S. residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a snapshot view of consumer demand for mortgage loans. In a falling mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out lower monthly payments. If consumers are able to reduce their monthly mortgage payment and increase disposable income through refinancing, it can be a positive for the economy as a whole (may boost consumer spending. Also allows debtors to pay down personal liabilities faster). A trend of declining purchase applications implies home buyer demand is shrinking.

Excerpts from the Release...

The Market Composite Index, a measure of mortgage loan application volume, decreased 5.6 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 5.6 percent compared with the previous week.

The Refinance Index decreased 0.6 percent from the previous week. The four week moving average is down 3.2 percent.  The refinance share of mortgage activity increased to 61.6 percent of total applications from 58.5 percent the previous week. This is the highest refinance share of the month.  

The seasonally adjusted Purchase Index decreased 13.6 percent to its lowest level since February 25, 2011, driven by a 26.6 percent decrease in government purchase applications.  The unadjusted Purchase Index decreased 12.8 percent compared with the previous week and was 28.8 percent lower than the same week one year ago.  The four week moving average is down 0.8 percent.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.80 percent from 4.83 percent, with points decreasing to 1.01 from 1.06 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.  The effective rate also decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.03 percent from 4.07 percent, with points decreasing to 0.96 from 1.02 (including the origination fee) for 80 percent LTV loans. The effective rate also decreased from last week.

"Purchase applications fell last week, driven primarily by a sharp decrease in government purchase applications as new, higher FHA premiums went into effect," said Michael Fratantoni, MBA’s Vice President of Research and Economics.  “This decrease reverses a 20 percent increase in government purchase applications over a four week period, which was likely driven by borrowers attempting to beat this deadline.”

READ MORE: FHA Hikes Annual MIP Fee

It was an exciting day in the bond market.

Early in the trading session, the environment looked unfriendly for mortgage rates.  Stocks were rallying and the first round of rate sheets released by lenders were worse than yesterday's.  But then the tide turned after a rush of economic data and headline news events flashed at 10:00am.  Stocks soon lost steam and the major indexes fell. This helped mortgage rates benefit from another investor "flight to safety" into the bond market. and gave lenders a chance to reprice for the better, which wiped out early morning losses and left loan pricing basically unchanged vs. quotes yesterday. Best Execution didn't budge and in most cases, closing costs didn't either.   

NEW GUIDANCE: Much of today's rebound in the bond market was attributable to short-term trading strategies that may or may not represent a shifting bias toward lower rates in the months ahead.  We are still waiting for confirmation of an extension of the recent rally.  The Employment Situation Report is always a high risk event for mortgage rates.  We are encouraged about the potential for an ongoing mortgage rate recovery beyond that, but are not expecting it to take shape on a quick timeline. If your lock/float decision is more immediate, it's a great time to be locking.  Long termers have a bit more thinking to do and most importantly, must decide how much they would sacrifice in cost/rate before locking at a loss in exchange for the chance to see if rates can improve further from here.