Mortgage rates improved last week amidst an atmosphere of major market uncertainty.
It wasn’t until Friday though, after exceedingly weak economic data, that consumer borrowing costs really rallied. This surprising positive development followed 10 straight sessions of unfriendly directional behavior. All of that negativity was essentially erased on Friday, leaving rates just above their best levels of the year. CHECK OUT THE CHART
The rally didn’t end there though. Over the weekend our nation’s political “leadership” finally put aside partisan opinions and came to an agreement on a long-term budget plan. Combine that with another round of unexpectedly weak economic data this morning and we’re looking at new 2011 consumer borrowing cost lows.
CURRENT MARKET*: The BestExecution conventional 30-year
fixed mortgage rate has improved to 4.50%. Some lenders are even offering 4.375% but that quote carries with it additional closing costs. On FHA/VA 30 year fixed BestExecution is
4.375% with some lenders willing to go as low as 4.25% (extra closing costs). 15 year fixed
conventional loans are best priced at 3.75%. Five year ARMs are best
priced at 3.25%. It’s important to point out an increased amount of variation in what individual lenders are quoting as their BestExecution rates. This is a factor of volatility in the secondary mortgage market. Unfortunately when volatility picks up in the secondary mortgage market, the cost of doing business get more expensive for lenders (hedging costs go up as lock desks peel off coverage at higher MBS prices). Those added costs are usually passed down to consumers.
THE WEEK AHEAD: With drama dying down over the debt ceiling debate and a U.S. default off the table, markets are ready to shift their attention back to economic fundamentals, which have been generally supportive of lower mortgage rates lately. And while plenty of indicators do have the potential to improve
the overall economic outlook, they’re more than likely going to confirm a
dour situation and keep a lid on rising mortgage rates. The most influential data-point of the week comes on Friday morning, with the release of the July Employment Situation Report. CHECK OUT THE FULL ECON CALENDAR
PREVIOUS GUIDANCE: Floating in this environment is a
crapshoot. Both stocks and bonds are maneuvering through major market
uncertainties. Investors are focused on news headlines regarding U.S. budget
issues, EU debt contagion concerns, economic data, and quarterly earnings. That
puts the direction of mortgage rates at the mercy of factors that don’t exactly
adhere to schedules or expectations. While we still view underlying economic
fundamentals as being supportive of lower mortgage rates in the future, the
short-term risks associated with a potential U.S. debt default leave us more
inclined to advise locking, especially deals that must be ready to close in the
next 10-15 days. This provides protection from rising rates and still gives
your lender a chance to negotiate if rates decline.
NEW GUIDANCE: Floating in this environment is still a
crapshoot, especially in the short-run, but barring an unexpected turn of events on Capitol Hill, a path has been paved for our longer-term mortgage rate outlook to come true. That means we see lower mortgage rates in the not so distant future. It may not be a direct path lower though, there will be ups and downs along the way. Be prepared for continued volatility.
CAUTION: MND guidance is speculative in nature. We don’t have a
crystal ball, we can’t predict the future, we can only share our outlook.
Making the following considerations extra important……………………
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
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
*BestExecution 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 BestExecution 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.