Mortgage Rates Higher Still. Biggest Market Mover Yet To Come

Interest Rates

Mortgage rates moved higher for the third straight day after an important legal decision in Germany indicated that Europe’s new permanent bailout fund will be ratified.  Markets were expecting this approval from the court, but weren’t clear on what the conditions would be.  After they were seen to be relatively livable, rates markets began moving higher shortly after the 4am (ET) announcement and have essentially stagnated since then, leaving mortgage rates higher by the time lenders released their first rate sheets of the day. 

It might seem odd that events in a court room in Germany are influencing domestic interest rates, but Germany’s participation in this bailout fund is critical for Europe.  They were the last country to ratify it and the decision today from their highest court means that the Euro zone will have that much of an easier time facilitating whatever form of monetary easing it ultimately conducts.  When central banks are seen to be supportive of liquidity in capital markets, it generally bodes well for stock prices and poorly for interest rates as markets move toward higher-risk investments.

Speaking of central banks supporting liquidity, tomorrow brings a closer-to-home central bank headline from the Fed.  Markets are widely expecting some additional form of quantitative easing to be announced, and at the very least for the Fed’s low interest rate verbiage to be extended (“low rate verbiage” refers to the section of the Fed’s policy announcement that lays out the expectation for rates to remains exceptionally low through late 2014).  

The volatility and defensiveness we’ve seen in the first three days of this week have largely been in anticipation of tomorrow’s FOMC Announcement.  It’s the biggest potential market mover in quite some time and could prove to be terribly damaging to rates, or extremely beneficial if the Fed happens to announce open-ended buying that includes the Secondary Mortgage Market.  Either way, the POTENTIAL movement is huge.  With best-execution for 30yr Fixed Conventional loans STILL at the same levels as last week, and STILL near all time lows, it’s a risky environment in which to be floating. 


(Read More:What is A Best-Execution Mortgage Rate?)

Temporary Note On G-Fee Hikes: This is something that’s happened before and is something we know will continue to happen (read more HERE), but it doesn’t make the effects on rate sheets seem like any less of a shock when they arrive.  Lenders have been adjusting their pricing policies more quickly in response to this most recent hike and it has generally been enough to push most scenarios up to the next .125% higher in rate.  In our view, this is a MUCH bigger consideration than trying to time highly uncertain financial markets.  Bottom line, if you can unequivocally confirm that you’re working with a lender who has not yet priced in the Guarantee Fee increase, and that your loan is on a timeline that risks being affected by it, we’d certainly favor locking in those scenarios (not to mention making sure your lender has everything they need to get your loan done without the need for a lock extension, because those are getting much more expensive in some cases if they cause the time frame on the file to cross into the higher Guarantee Fee territory).

Long Term Guidance: We’d continue to advocate against trying to “get ahead” of current market movements due to the high degree of uncertainty.  The long-term direction of rates has been down, down, down, for the past
year.  At some point, this will turn, and when it does, we highly
recommend that you’re prepared by drawing your OWN line in the
sand as
to how much rates would have to rise before you lock at a lost.  That’s
assuming you don’t simply lock as soon as you’re able.  For those with
lower levels of risk tolerance who would consider movements in cost
(despite unchanged interest rates) to be significant, or for those
within 15 days of closing, or who are purchasing, this certainly favors locking.  We’d also consider that rates remain very close to all-time lows and uncertainty to all-time highs.  This also favors locking.

Loan Originator Perspectives

Victor Burek, Benchmark Mortgage

Big day tomorrow..does the Fed give the markets what they want?  I would
definitely recommend locking all loans today. Even if we get QE3, I dont
think rates will improve enough to warrant the risk of floating.


  • 30YR FIXED –  3.5%
  • FHA/VA – 3.5% (varies more between lenders than conventional 30yr Fixed)
  • 15 YEAR FIXED –  2.875-3.00%
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations 

  • Rates and costs continue to operate near all time best levels
  • Rates could easily move higher or lower, but given the nearness to
    all time lows, there’s generally more risk than reward regarding
  • But that will always be the case when rates operate near all-time
    levels, and as 2011 showed us, it doesn’t always mean they’re done
  • (As always, please keep in mind that our talk of Best-Execution
    always pertains to a completely ideal scenario.  There can be all sorts
    of reasons that your quoted rate would not be the same as our average
    rates, and in those cases, assuming you’re following along on a day to
    day basis, simply use the Best-Ex levels we quote as a baseline to track
    potential movement in your quoted rate).

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