The extent to which Mortgage rates have fallen since the Fed’s QE3 announcement is nothing short of astonishing. Beginning on the day of the QE3 announcement, rates have fallen every single day since, crashing through previous all-time lows in the process. This is the first time in history where the average daily improvement has been bigger AFTER breaking previous all time lows.
In other words, the positive momentum that carries rates lower usually starts to taper off after hitting all-time lows. In the past we’ve tended to move lower only in small amounts and with scattered instances of pull-backs to slightly higher rates before continuing slowly lower–a staircase of sorts. But the current rally is much more like a slide. From 3.5% best-execution 2 weeks ago, we’re now well into 3.25% and more lenders opened up pricing availability under 3.25% today!
Long Term Guidance: While the recently high degree of uncertainty remains very much intact, the Fed’s decision to specifically target Mortgage-Backed-Securities in a third round of Quantitative easing provides a supportive undertone for mortgage rates. We’d still advocate not trying to get too far ahead markets. In other words, we wouldn’t try to guess how low or how high rates might go before changing course. For now, the trend is supportive and positive for rates, but we’re watching it closely for the same sort of paradoxical responses that occurred in 2010. Things look different this time around, but a lot of that has to do with Europe. Rates remain near all time lows and risks of volatility remain high. Those factors suggest that you stay vigilant regarding the day-to-day swings in mortgage rates. If you’re floating, set a limit as to how high rates would have to go before you cut your losses and locked. Similarly, set a target of how low rates would have to get before you lock.
Loan Originator Perspectives
“With the consistent gains we have seen each day since the FOMC
announcement to purchase $40B per month of MBS, my concern is for a
correction. Locks greater than 30 days could benefit from locking
versus floating. I’m generally advising locking for longer periods
today. Many serial refinancers are at it again, mostly call-ins, as
opposed to outbound calls. Here’s hoping the Fed gets it right and this
truly sparks purchase business. ” –Matt Hodges, Loan Officer, Presidential Mortgage Group
“Writing a mix of conventional, HARP, and FHA/VA streams, and have begun
more of a float bias. One interesting observation is that some
investors have basically frozen their rate sheets, with identical
pricing from 3.25% to 4.0% on FHA streams. Can’t last, as MBS continue
to climb, loan pricing will catch up, at least to some extend. Seeing
some FHA 30 year rates around 3%. Are you kidding me??” –Ted Rood, Senior Originator, Bank Star
“Still waiting for rates to reflect the MBS market. I think lenders are
afraid of runoff so they have colluded to keep rates a little higher
and will slowly let them drop. Also profits are getting fatter because
of this. Luckily we have float down / renegotiation options as well
to drop locked rates. Still have many borrowers asking to float and
right now it’s not a bad idea.” –Mike Owens, Partner with HorizonFinancial, Inc.
Today’s Best-Execution Rates
- 30YR FIXED – 3.25%
- FHA/VA – 3.25% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED – 2.75%
- 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 floating
- This 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 improving.
- (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).