Home loan borrowing costs are hovering near the best levels we’ve seen all year. Volatility has however picked up in the bond market. Just last Tuesday rate watchers experienced a scare where it looked like Best Execution quotes were doomed to move higher. Those anxieties were however quickly alleviated as a flight to safety rallied benchmark bonds back to their lowest yields in nearly 7-months.
A “flight to safety” happens when investors are nervous about owning
risky assets like stocks, but do not want to miss out on earning a
return on their funds, so they allocate their money into risk-free
government guaranteed U.S Treasury debt to provide a safe-haven and an
investment return. As benchmark Treasury yields fall on “flight to
safety” buyer demand, prices of mortgage-backed securities move higher
in unison. This allows lenders to reprice their rate sheets for the
better and gives originators an opportunity to offer fence-sitting
borrowers lower mortgage rates or more competitive closing costs.
The chance that Greece may default on their government debt obligations has global investors running for safety…
CURRENT MARKET: The “Best
Execution” conventional 30-year fixed mortgage rate is 4.50%. Some
lenders may be quoting 4.50% with increased closing
costs in the form of origination fees. Some lenders may also be quoting
4.375%, but those offers will definitely carry additional closing
costs. These costs could be worth it to
applicants who plan to keep their new mortgage outstanding for long
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
more stratified and there is more variation in what will be
“Best-Execution” depending on your individual scenario.
THE WEEK AHEAD: Indecisive investor attitudes carry over into the week ahead where two major events are seen shaping outlooks. The U.S. Federal Reserve will conclude a two-day monetary policy meeting on Wednesday afternoon with the release of the FOMC Statement. We expect the Fed to confirm an end to its second Quantitative Easing program (QEII) and indicate that further quantitative easing measures are totally dependent on new economic data developments. The Fed’s current stance calls for economic growth to pick-up in the 2nd half of the year. The other market moving event on the horizon is the ongoing Greek debt crisis. Greek officials have said the country will face default by mid-July if the European Union and the International Monetary Fund do not release the next phase of bailout funds by then. Over the weekend Euro-zone finance ministers delayed a final decision on extending those emergency loan funds to Greece until they agree on an aggressive plan to pay back debts. Since restructuring government leadership positions largely failed to improve national sentiment surrounding new spending cuts, Greek Prime Minister George Papandreou is now seeking government approval to enact his own austerity plan through a “vote of confidence”, which will be taken on Tuesday night. Failing to agree on tough spending cuts would lead market participants to believe the Greeks are not serious about making long-term concessions to pay back their debt. This would be seen as a negative influence on stocks and a positive influence on mortgage rates. Other than those two stories, the economic calendar is pretty thin with no events on Monday and only Existing Home Sales on Tuesday. The FOMC Statement will be issued at 2:15 on Wednesday. Then on Thursday we get a regional business activity index (we got two bad updates last week) plus Jobless Claims and New Home Sales. The week wraps up on Friday with Final Q1 GDP and Durable Goods Orders.
CURRENT GUIDANCE: There’s a weird feeling in the air. Stocks
are teetering on a major technical breakdown and bonds smell fear but
are waiting for new guidance to be offered. If stocks fail
to mount a recovery rally in the near future, we could be looking at
another leg lower in Best Execution mortgage rates. While this “feeling”
ties together well with our long-term outlook, it’s still speculative
in nature and largely driven by headline news. We say that because the timing of such news headlines, positive or negative, is “at any
moment”. And until it the market is given new information, stocks are gonna put up a fight.
This “scratching and clawing” in equities implies the potential for loan
pricing volatility remains high. Remember, it was only last week when Best Execution Mortgage Rates were teetering on a shift
higher because stocks had put together a decent intraday rally effort.
may have dodged a bullet, but we’re not out of the
woods yet. The
past few days provide a perfect example of how quickly unfriendly
fluctuations can occur in the mortgage market.
What MUST be considered BEFORE one thinks about capitalizing on a rates
1. WHAT DO YOU NEED? Rates might not rally as much as you
2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you
3. HOW DO YOU HANDLE STRESS? Are you ready to make tough
“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