Mortgage Rates: Once Again Storing Energy

After drifting
progressively higher for seven straight sessions, we’ve finally seen some
stabilization and even modest improvements in home loan borrowing costs.

We were hoping the release of the Employment Situation Report on Friday might provide the market with a new directional bias, but after a volatile week the only thing confirmed is more indecision and uncertainty. Mortgage rates are essentially trendless with an equal chance at moving higher or lower. 

Previously we’d mentioned “teetering on a
shift…”  Little has changed.

CURRENT MARKET: The “Best Execution” conventional 30-year
fixed mortgage rate is still 4.875%.  For those looking to permanently buy down
their rate to 4.75%, this quote carries higher closing costs. The upfront fee
to permanently buy down your rate  to 4.75% is not worth it to every
applicant, we would generally only advise the permanent floatdown if you plan
to keep your new mortgage outstanding for longer than the next 10 years. 
Ask your loan officer to run a breakeven analysis on any origination points
they might require to cover permanent float down fees. On FHA/VA 30 year fixed
“Best Execution” is 4.75%. 15 year fixed conventional loans are best
priced at 4.125%. Five year ARMS are best priced at 3.50%.

PREVIOUS GUIDANCE: It would have been convenient if the
Employment Situation Report left markets with a renewed sense of purpose and
momentum but unfortunately, we’ve only been offered more uncertainty  (we
say “more” because a traditionally influential piece of economic data failed to
move the markets today).  While that makes it harder to predict the
future, it does little to change our guidance.  If you’ve got time,
flexibility, or otherwise are not in any particular rush or pressing need to
lock your loan, we still think it’s possible that rates make one more run lower
in the months ahead.  If you can’t afford or don’t want to take a risk,
lock now because it might not get any better from CURRENT MARKET again. Can’t
wait to see what happens next week.

CURRENT GUIDANCE: The longer we go without getting a clear sense of
market direction, the higher the risks involved in floating. 
It’s not that a longer waiting period automatically pressures rates higher, it just
means the longer rates stay sideways, the more energy they store for their next
movement up OR down.  Considering that
the costs for a 5% loan (for example) have only been lower a few days this year
(see last week’s CHART OF
CLOSING COSTS
broken down by available rates), our guidance is unchanged: If
you can’t afford or don’t want to take a risk, lock now because it might not
get any better from CURRENT MARKET again. 
If you’ve got time, flexibility, or otherwise are not in any particular
rush or pressing need to lock your loan, we still think it’s possible that rates
make one more run lower in the months ahead. 

ECONOMIC CALENDAR: THE WEEK AHEAD

“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 buydown 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.

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.

Article source: http://www.mortgagenewsdaily.com/consumer_rates/205907.aspx

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