Posts Tagged ‘secondary mortgage market’

Best-Execution mortgage rates are unchanged vs. yesterday's offerings.The closing costs tied to those rates actually moved marginally lower today. This is contrary to what one might have expected given the price behavior seen in the secondary mortgage market. 

This is important because it means some lenders absorbed loan pricing weakness that should have been passed down to consumers. So a few borrowers will enter tomorrow with more on the line than usual.

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.75%.  If you are looking to move down from there, you'll be assessing the trade-offs between higher closing costs and lower monthly payments.  This could be worth it to applicants who plan on keeping their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution" is 4.50%.  15 year fixed conventional loans are best priced at 4.000%. Five year ARMs are best priced at 3.375% 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:  Had bond markets not received the gift of a stronger-than-expected Treasury auction today, we'd likely be reporting a moderate increase in borrowing costs.  Moral of the story?  This week's high-risk events are having an immediate and significant impact on rates.  Combine that with what continues to be nearly the best rate offerings in over half a year ...and a relatively strong bias toward locking should be in place for most "soon to close"scenarios.  Our defensiveness about the short term does NOT rule out the broader improvements that we've seen as possible for some months now.

CURRENT GUIDANCE:  And we'll keep on reiterating the lock bias for shorter term lock/float scenarios.  You may not lock on the perfect day of the week, but you will still lock during one of the better weeks of the year. You're way ahead of the game.   The possibility for an intermediate to longer term rates rally remains on the table. READ MORE: Margin Squeeze Hits Headlines. False Start Baked into Bonds

 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.

Realtors® attending the National Association of Realtors (NAR) mid-year legislative meetings and trade expo in Washington heard a panel of housing experts lay out the several solutions for housing finance reform.  

The six panelists discussing Fannie Mae & Freddie Mac: Obama Options and Beyond were Steve Brown, 2011 NAR first vice-president nominee; James Parrot, senior advisor for housing at the National Economic Council; Susan Wachter, a professor at The Wharton School, University of Pennsylvania; Mark Calabria, director of Financial Regulation Studies at the Cato Institute; David Katkov, executive vice president and chief business officer at The PMI Group, and Ann Grochala, vice president at the Independent Community Bankers of America.

Scott Brown laid out the official NAR stance on reforming the housing finance system and the future of the two government sponsored enterprises (GSEs) Freddie Mac and Fannie Mae.  NAR believes that reform is required and taxpayers must be protected from losses, he said.  The federal government must continue to play a role in the secondary mortgage market to ensure a steady flow of mortgage liquidity in all markets under all economic conditions.

Brown said "As the leading advocate for home owners, NAR is concerned that eliminating the GSEs without a viable replacement is not a reasonable option and will severely restrict mortgage capital and result in higher fees and costs for qualified borrowers.  Reform of the secondary mortgage market needs to be comprehensive and undertaken methodically."

James Parrot reviewed the Obama administration's recommendations which include varying levels of government backing. The Administration is looking at both the near-term and what steps should be taken to reduce taxpayer risk and make the housing market more stable but also to frame the discussion regarding the government's long-term role in housing finance.

"The government's large presence in the housing finance is unhealthy and needs to be scaled back; however, the steps we take over next few years to reduce the government's role and increase private capital will have a tremendous impact on the housing market and economy as well as the availability and affordability of mortgages," Parrot said. "The objective isn't to turn away from housing, but to make the housing finance market stronger so that families and their most important asset are better protected."

Mark Calabria restated the position of the Cato Institute which he has presented to at least one congressional committee: the government should have a very limited role in the secondary market.  He told the NAR attendees that the private capital market has the funds and capacity to absorb Fannie Mae and Freddie Mac's market share and that increased government support in the past few decades have only slightly increased America's homeownership rate. Homeownership rates in other countries, he said, are higher despite their government's limited involvement. Calabria did acknowledge that some government backstop was essential in the future, since the housing and finance markets are sensitive to booms and busts.

David Katkov countered that it would be naïve to move to a purely private market simply because it's been successful in other countries, adding that the U.S.'s housing finance system dwarfs that of other countries and is far more complex.  Ann Grochala also expressed concern that a purely private market would work against small lenders and community banks because of the heavy competition from the big banks.

Susan Wachter agreed that private capital needs to return to the housing finance market, but that most likely won't happen until the market has stabilized. "There needs to be more accountability and transparency in the secondary mortgage market," she said, "so that private investors can best assess their risk and safely get back into the market."

READ MORE FROM THE REALTORS: Existing Home Sales Still Hindered by Uber Tight Lending Regs

Realtors® attending the National Association of Realtors (NAR) mid-year legislative meetings and trade expo in Washington heard a panel of housing experts lay out the several solutions for housing finance reform.  

The six panelists discussing Fannie Mae & Freddie Mac: Obama Options and Beyond were Steve Brown, 2011 NAR first vice-president nominee; James Parrot, senior advisor for housing at the National Economic Council; Susan Wachter, a professor at The Wharton School, University of Pennsylvania; Mark Calabria, director of Financial Regulation Studies at the Cato Institute; David Katkov, executive vice president and chief business officer at The PMI Group, and Ann Grochala, vice president at the Independent Community Bankers of America.

Scott Brown laid out the official NAR stance on reforming the housing finance system and the future of the two government sponsored enterprises (GSEs) Freddie Mac and Fannie Mae.  NAR believes that reform is required and taxpayers must be protected from losses, he said.  The federal government must continue to play a role in the secondary mortgage market to ensure a steady flow of mortgage liquidity in all markets under all economic conditions.

Brown said "As the leading advocate for home owners, NAR is concerned that eliminating the GSEs without a viable replacement is not a reasonable option and will severely restrict mortgage capital and result in higher fees and costs for qualified borrowers.  Reform of the secondary mortgage market needs to be comprehensive and undertaken methodically."

James Parrot reviewed the Obama administration's recommendations which include varying levels of government backing. The Administration is looking at both the near-term and what steps should be taken to reduce taxpayer risk and make the housing market more stable but also to frame the discussion regarding the government's long-term role in housing finance.

"The government's large presence in the housing finance is unhealthy and needs to be scaled back; however, the steps we take over next few years to reduce the government's role and increase private capital will have a tremendous impact on the housing market and economy as well as the availability and affordability of mortgages," Parrot said. "The objective isn't to turn away from housing, but to make the housing finance market stronger so that families and their most important asset are better protected."

Mark Calabria restated the position of the Cato Institute which he has presented to at least one congressional committee: the government should have a very limited role in the secondary market.  He told the NAR attendees that the private capital market has the funds and capacity to absorb Fannie Mae and Freddie Mac's market share and that increased government support in the past few decades have only slightly increased America's homeownership rate. Homeownership rates in other countries, he said, are higher despite their government's limited involvement. Calabria did acknowledge that some government backstop was essential in the future, since the housing and finance markets are sensitive to booms and busts.

David Katkov countered that it would be naïve to move to a purely private market simply because it's been successful in other countries, adding that the U.S.'s housing finance system dwarfs that of other countries and is far more complex.  Ann Grochala also expressed concern that a purely private market would work against small lenders and community banks because of the heavy competition from the big banks.

Susan Wachter agreed that private capital needs to return to the housing finance market, but that most likely won't happen until the market has stabilized. "There needs to be more accountability and transparency in the secondary mortgage market," she said, "so that private investors can best assess their risk and safely get back into the market."

READ MORE FROM THE REALTORS: Existing Home Sales Still Hindered by Uber Tight Lending Regs

Realtors® attending the National Association of Realtors (NAR) mid-year legislative meetings and trade expo in Washington heard a panel of housing experts lay out the several solutions for housing finance reform.  

The six panelists discussing Fannie Mae & Freddie Mac: Obama Options and Beyond were Steve Brown, 2011 NAR first vice-president nominee; James Parrot, senior advisor for housing at the National Economic Council; Susan Wachter, a professor at The Wharton School, University of Pennsylvania; Mark Calabria, director of Financial Regulation Studies at the Cato Institute; David Katkov, executive vice president and chief business officer at The PMI Group, and Ann Grochala, vice president at the Independent Community Bankers of America.

Scott Brown laid out the official NAR stance on reforming the housing finance system and the future of the two government sponsored enterprises (GSEs) Freddie Mac and Fannie Mae.  NAR believes that reform is required and taxpayers must be protected from losses, he said.  The federal government must continue to play a role in the secondary mortgage market to ensure a steady flow of mortgage liquidity in all markets under all economic conditions.

Brown said "As the leading advocate for home owners, NAR is concerned that eliminating the GSEs without a viable replacement is not a reasonable option and will severely restrict mortgage capital and result in higher fees and costs for qualified borrowers.  Reform of the secondary mortgage market needs to be comprehensive and undertaken methodically."

James Parrot reviewed the Obama administration's recommendations which include varying levels of government backing. The Administration is looking at both the near-term and what steps should be taken to reduce taxpayer risk and make the housing market more stable but also to frame the discussion regarding the government's long-term role in housing finance.

"The government's large presence in the housing finance is unhealthy and needs to be scaled back; however, the steps we take over next few years to reduce the government's role and increase private capital will have a tremendous impact on the housing market and economy as well as the availability and affordability of mortgages," Parrot said. "The objective isn't to turn away from housing, but to make the housing finance market stronger so that families and their most important asset are better protected."

Mark Calabria restated the position of the Cato Institute which he has presented to at least one congressional committee: the government should have a very limited role in the secondary market.  He told the NAR attendees that the private capital market has the funds and capacity to absorb Fannie Mae and Freddie Mac's market share and that increased government support in the past few decades have only slightly increased America's homeownership rate. Homeownership rates in other countries, he said, are higher despite their government's limited involvement. Calabria did acknowledge that some government backstop was essential in the future, since the housing and finance markets are sensitive to booms and busts.

David Katkov countered that it would be naïve to move to a purely private market simply because it's been successful in other countries, adding that the U.S.'s housing finance system dwarfs that of other countries and is far more complex.  Ann Grochala also expressed concern that a purely private market would work against small lenders and community banks because of the heavy competition from the big banks.

Susan Wachter agreed that private capital needs to return to the housing finance market, but that most likely won't happen until the market has stabilized. "There needs to be more accountability and transparency in the secondary mortgage market," she said, "so that private investors can best assess their risk and safely get back into the market."

READ MORE FROM THE REALTORS: Existing Home Sales Still Hindered by Uber Tight Lending Regs

Home loan borrowing costs improved enough today to say Best-Execution mortgage rates could be considered "in the process of" a shift lower. This doesn't mean all lenders are willing to quote lower Best Execution mortgage rates, but a few are offering "below current market" deals righ now because the primary mortgage market is highly-competitive. 

This would be the first phase of a broader-based shift lower in Best Execution rates. Encouraging yes. Comforting No.

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.875%. If you are looking to move down to 4.75%, this offer carries higher closing costs but could be worth it to applicants who plan on keeping their new mortgage outstanding for longer than the next 10 years.  Some lenders are beginning to price loans more aggressively because competition is tight, so scattered sightings of 4.75% BestEx are possible, but not on a wide-spread basis. Ask your loan officer to run a break-even analysis on any origination points they might require to cover permanent float down fees. On FHA/VA 30 year fixed "Best Execution" is still 4.75%.  15 year fixed conventional loans are best priced at 4.25%. Five year ARMs are still seen best priced at 3.50% 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 FOMC meeting has come and gone with little change in our outlook. There was a modest downgrade in the Fed's economic projections but they anticipate that slowdown to be "transitory".  As a result the secondary mortgage market continues to affirm its resistance to breaking through the Best-Execution barrier at 4.875%. We're still entertaining possibilities in either direction, but with the understanding that breaking 4.875% is still just as difficult as it was the last time rates stagnated there for over a month. Inclined floaters are advised to keep a very close eye on rate movements, especially with borrowing costs in a holding pattern near one-month lows. Bottom Line: today wasn't enough to get rates unstuck.

CURRENT GUIDANCE:   Before the Fed Announcement we said "if you have the flexibility to wait until Thursday morning to see how rates fared, that's allowable if not advisable due to limited possible gains."  The gains were indeed limited afterall. But perhaps we saw the early signs of a new, lower Best-Ex rate offering today. Thing is, we're going to be bouncing up and down a bit in the weeks between now and the end of June, so the only way to approach is either automatically favor locking to avoid risk, or wait around until you think rates confirm a bottom. And if you think they've already bottom, today, rates are at or below their best levels in recent months.  If you floated through the high-risk FOMC event, you've saved some money. If you think you can save more, better read the rules....

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?

READ MORE ABOUT THE BARRIER IN BEST EXECUTION

FOMC RECAP

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

*"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 intense fiscal frisking that comes along with the underwriting process.

Home loan borrowing costs improved enough today to say Best-Execution mortgage rates could be considered "in the process of" a shift lower. This doesn't mean all lenders are willing to quote lower Best Execution mortgage rates, but a few are offering "below current market" deals righ now because the primary mortgage market is highly-competitive. 

This would be the first phase of a broader-based shift lower in Best Execution rates. Encouraging yes. Comforting No.

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.875%. If you are looking to move down to 4.75%, this offer carries higher closing costs but could be worth it to applicants who plan on keeping their new mortgage outstanding for longer than the next 10 years.  Some lenders are beginning to price loans more aggressively because competition is tight, so scattered sightings of 4.75% BestEx are possible, but not on a wide-spread basis. Ask your loan officer to run a break-even analysis on any origination points they might require to cover permanent float down fees. On FHA/VA 30 year fixed "Best Execution" is still 4.75%.  15 year fixed conventional loans are best priced at 4.25%. Five year ARMs are still seen best priced at 3.50% 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 FOMC meeting has come and gone with little change in our outlook. There was a modest downgrade in the Fed's economic projections but they anticipate that slowdown to be "transitory".  As a result the secondary mortgage market continues to affirm its resistance to breaking through the Best-Execution barrier at 4.875%. We're still entertaining possibilities in either direction, but with the understanding that breaking 4.875% is still just as difficult as it was the last time rates stagnated there for over a month. Inclined floaters are advised to keep a very close eye on rate movements, especially with borrowing costs in a holding pattern near one-month lows. Bottom Line: today wasn't enough to get rates unstuck.

CURRENT GUIDANCE:   Before the Fed Announcement we said "if you have the flexibility to wait until Thursday morning to see how rates fared, that's allowable if not advisable due to limited possible gains."  The gains were indeed limited afterall. But perhaps we saw the early signs of a new, lower Best-Ex rate offering today. Thing is, we're going to be bouncing up and down a bit in the weeks between now and the end of June, so the only way to approach is either automatically favor locking to avoid risk, or wait around until you think rates confirm a bottom. And if you think they've already bottom, today, rates are at or below their best levels in recent months.  If you floated through the high-risk FOMC event, you've saved some money. If you think you can save more, better read the rules....

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?

READ MORE ABOUT THE BARRIER IN BEST EXECUTION

FOMC RECAP

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

*"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 intense fiscal frisking that comes along with the underwriting process.

Today's much anticipated high risk event, the FOMC Statement and subsequent press conference, leaves fence-sitters unscathed as no changes in home loan borrowing costs were seen before or after headline news was released.  Best Execution 30-year fixed mortgage rates are the same as they were yesterday. Those who locked ahead of the event didn't "miss out" on additional gains. Those who've been more inclined to float received no reward for doing so...

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.875%. If you are looking to move down to 4.75%, this offer carries higher closing costs but could be worth it to applicants who plan on keeping their new mortgage outstanding for longer than the next 10 years.  Some lenders are beginning to price loans more aggressively because competition is tight, so scattered sightings of 4.75% are possible, but not on a wide-spread basis. Ask your loan officer to run a break-even analysis on any origination points they might require to cover permanent float down fees. On FHA/VA 30 year fixed "Best Execution" is still 4.75%.  15 year fixed conventional loans are best priced at 4.25%. Five year ARMs are still seen best priced at 3.50% 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: If you have the flexibility to wait until Thursday morning to see how rates fared after tomorrow's Fed Announcement, that's allowable even if it's not advisable due to the limited nature of potential gains. We say that because we  do think it's possible the Fed signals a less optimistic outlook this week, which would be supportive of an improvement in Best Execution Mortgage Rates.  But just because it's POSSIBLE, doesn't mean it's LIKELY though.  Things can go either way, and the secondary mortgage market is definitely showing its resistance to the idea of taking the conventional 30yr fixed Best-Execution rate below 4.875%.  If you're in the market to remove risk from your scenario, now's a great time to favor locking.  Conversely, if you're in the market for risk, it's also not insane to float for potential gains.  Good times...

CURRENT GUIDANCE:   The FOMC meeting has come and gone with little change in our outlook. There was a modest downgrade in the Fed's economic projections but they anticipate that slowdown to be "transitory".  As a result the secondary mortgage market continues to affirm its resistance to breaking through the Best-Execution barrier at 4.875%. With the surprisingly tame reaction to the FOMC Statement and press conference, the onus is now placed on the week's remaining data and final Treasury auction to round-out the overall guidance for bond markets in the days ahead.  We're still entertaining possibilities in either direction, but with the understanding that breaking 4.875% is still just as difficult as it was the last time rates stagnated there for over a month. Inclined floaters are advised to keep a very close eye on rate movements, especially with borrowing costs in a holding pattern near one-month lows. Bottom Line: today wasn't enough to get rates unstuck.

READ MORE ABOUT THE BARRIER IN BEST EXECUTION

FOMC RECAP

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

   1. WHAT DO YOU NEED? Rates might not recover as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not recover as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready for MORE VOLATILITY in the bond market?

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

*"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 intense fiscal frisking that comes along with the underwriting process.

Mortgage rates are unchanged today as bond markets are closed for Good Friday.

Yesterday, wewrote that loan pricing was in a holding pattern until next week when the market faces a high-risk event, a Federal Reserve meeting. We expect this event to better dictate the direction of mortgage rates in the short-term.

"Holding pattern" doesn't necessarily provide an accurate bias regarding locking or floating as it would tend to suggest some sort of 50/50 scenario with equal chances of rates moving higher or lower. But in all actuality, it will be tougher for mortgage rates to move lower than it would for mortgage rates to move higher.  We've talked about why that is the case many times over the past four months. This is the technical explanation we've offered:

"Lenders have moved the Best Execution 30-year fixed note rate as low as they possibly can without drastically altering their pipeline hedging strategies.  This is a factor of what production mortgage-backed security coupon is most liquid in the secondary mortgage market. On conventional loans, the 4.50 percent MBS coupon is the hedging vehicle of choice for lock desks.  Home loans with note rates between 4.875 and 5.25% are generally used to fill 4.50 percent MBS coupon trades. Until MBS investors demonstrate sustainable demand for 4.00 percent 30-year fixed MBS coupons, lenders will not find it economically efficient to quote 4.75 percent note rates without expensive permanent buydown costs. From that perspective, if you are floating a conventional home loan interest rate, you should not be expecting further improvements to your actual rate in the short term. If the bond market recovery rally continues, closing costs will improve, but on the whole, it will take a sustained move higher in 4.00 percent MBS coupon prices for Best Execution to dip below 4.875 percent."

And here's a simpler way to think about it.  Any time someone gets a mortgage, the lender that fronts the money to fund that mortgage throws the borrower's monthly payment in a mortgage-backed security bucket with loans of similar credit quality and rate.  For example, home loans with 4.875-5.25% interest rates tend to end up in the same buckets. That is the bucket where a vast majority of mortgages are ending up these days.  This bucket has an effective monopoly on mortgage rates and it's simply not safe business for lenders to offer rates that can't fit inside it.  

It's possible for lenders to shift mortgage rates into a new, lower bucket, but it takes much convincing in terms of a sustained bullish movement in the bond market.  The need for a broad-based shift in lender bucket preference is what puts up a high level of resistance when "Best Execution" mortgage rates seem like they should be moving lower at a faster pace. This is exactly the reason we say it's not the kind of thing you want to plan on until it begins to happen.  In other words, it doesn't make much sense to kid-proof your house unless you have kids or have one on the way!

The earthquake crisis in Japan was the only time in recent history where it seemed like this unlikely shift had a chance of occurring.  But as the worst-case-scenarios became less likely, lenders quickly returned mortgage rates to their most cost-effective "bucket" (which is based on a variety of technical factors). 

Take a look at our most recent chart of the average origination costs tied to specific interest rate quotes (based on the offers from the five major mortgage lenders). You can see at a rate of 5.0% for instance, that current rates are near their best levels of the year with the exception of one day in January and the two most panic driven days of the Japan Crisis in mid-March.

If the note rate line is moving up, the closing costs associated with that note rate are rising. As you can see, consumer borrowing costs shot higher last week before reversing course this week.

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 4.875%. If you are looking to move down to 4.75%, this offer carries higher closing costs but could be worth it to applicants who plan on keeping their new mortgage outstanding for longer than the next 10 years.  Some lenders are beginning to price loans more aggressively because competition is tight, so scattered sightings of 4.75% are possible, but not on a wide-spread basis. Ask your loan officer to run a break-even analysis on any origination points they might require to cover permanent float down fees. On FHA/VA 30 year fixed "Best Execution" is still 4.75%.  15 year fixed conventional loans are best priced at 4.25%. Five year ARMs are still seen best priced at 3.50% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

CURRENT GUIDANCE (same as yesterday due to markets being closed today):  Today's market movements did nothing to change the guidance we presented yesterday which suggested two possibilities.  The first possibility is that that recent improvements in rates are on hold until after next week's FOMC Announcement (Fed meeting) as past precedent suggests that bond markets may fear the Fed will indicate some sort of acceleration of rate hike prospects, which would be negative for rates.  The other possibility is that the announcement will contain no such "scary" indication, which suggests rates either return to current levels or improve.  Either way, we view floating as risky given the uncertainty of that situation in combination with the fact that the 4.875% Best-Execution rate which we know will be a hard barrier to break.  So although longer term, more flexible outlooks can still float in speculation of further gains, the upside is limited enough for shorter term outlooks to favor locking.

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

   1. WHAT DO YOU NEED? Rates might not recover as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not recover as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready for MORE VOLATILITY in the bond market?

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"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 intense fiscal frisking that comes along with the underwriting process.