experienced another record setting day. While the 3.875% Best-Execution rate remains unchanged on average, the costs involved to obtain that rate reached inched slightly lower to reach a new all-time low.
Despite the record levels, it was a fairly uneventful day for the Mortgage-Backed-Securities (MBS) that most directly govern rates as well as the broader fixed-income market. Ongoing concerns about Europe, Fed-buying, and weakness in equities markets helped keep bond markets in good shape all day long. 10yr Treasury yields moved under 1.86% after the first round of Fed-buying and have stayed there ever since. Treasury gains outpaced MBS today, and combined with the dynamics described in the ongoing lock/float considerations below, this is keeping somewhat of a lid on further rate sheet improvements in the mortgage world. Yes, small, incremental gains can and will be seen on days like today, but they’re increasingly hard-fought at current levels.
Please make sure to read the
“important rate disclaimer” at the bottom of the page in considering
what “all-time lows” means. The issue of “buckets” as described in the
lock/float considerations below, remains a factor that may prevent rates
and/or fees from moving significantly lower in the short term.
Today’s BEST-EXECUTION Rates
- 30YR FIXED – 3.875%
- FHA/VA –
Back firmly to 3.75%
- 15 YEAR FIXED – 3.375%, Approaching 3.25%
- 5 YEAR ARMS – 2.625-3.25% depending on the lender
Lock/Float Considerations (unchanged from 12/14/11)
Keep in mind that a huge factor in how low mortgage rates can go is
the underlying Mortgage-Backed-Securities market. A vast majority of
loan products offered by lenders end up as part of MBS pools. Even many
of the loans that don’t end up as MBS are originated at interest rates
and guidelines that would allow them to be pooled into MBS “buckets”
later in life.
Without MBS, rates wouldn’t be as low as they are and funding for
mortgage loans would not be as plentiful. The reasons for this are
complicated and numerous, but the important concept to understand is
that there has to be AN ACTIVE ENOUGH MARKET in a particular
mortgage-backed-security in order for lenders to be able to offer rates
at levels that coincide with that particular MBS. Think of these like
For a long time, the 4.0 bucket was the lowest MBS coupon for
Conventional 30yr Fixed mortgages. We spent a good deal of time writing
about the gradual shift to 3.5 MBS, the next bucket down, over the past
5 months. The average interest rate of loans in the 3.5 bucket is
around 4%, with a range from 3.75% to 4.25%.
If lenders are to offer rates below 3.75% that make any sort of sense
(lower rates are already technically available, but the closing costs
required to buy those rates usually doesn’t make much sense from a
“break-even” standpoint. In other words, “cost to buy rate down”
“sum of monthly savings over the period of time you plan to have the
loan”) it would mean that an entirely new bucket of MBS (3.0’s) would
have to gain enough of a market share for lenders to safely be able to
offer such rates. This has never happened before, and although it COULD
happen in the future, it’s not happening now.
We feel that a pick up in the activity in 3.0 MBS would be the first
sign of a potential shift lower in rates from current levels. Until
then, 3.875% and 3.75% at best, are sort of the new “wall” in 30yr Fixed