Mortgage Rates: Stuck in Defensive Stance

Home loan borrowing costs today recovered a portion of the
increases they experienced on Monday and Tuesday. 
Once again these slight cost improvements came amidst a volatile backdrop. These are generally not favorable conditions for rate watchers as volatility in the secondary mortgage market puts lenders
in a more defensive position than usual. That means we’re not seeing aggressive loan pricing strategies on rate sheets.  Mortgage rate movements have gone stale.

CURRENT MARKET: The “Best
Execution” conventional 30-year fixed mortgage rate is still 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
enough to 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 market is more stratified and there is more variation in what will be
“Best-Execution” depending on your individual scenario. 

PREVIOUS GUIDANCE:  “Volatility” in and of itself
doesn’t mean rates are more likely to get directionally better or worse, but it
does mean lenders are more anxious about the potential for larger intraday loan
pricing swings. This creates a defensive environment where rate sheets
fluctuate in a wider range of offers.  If you can’t afford (or don’t want
to afford) to risk what could be a meaningful increase in closing costs or even
a .125% shift higher in rate, we’re always in favor of protecting current
offers, especially when rates are near their best levels in recent memory and
high-risk, high-impact economic events are less than 24 hours away.  If
you float through today into tomorrow, you’re basically accepting any
short-term rate/cost adjustments that take place following the market’s
reaction to those events.

CURRENT GUIDANCE:  As volatility continues in the secondary market, it’s
becoming apparent that lenders are pricing loans from a defensive stance.  Lenders are waiting for the secondary market to commit to a directional trend.  With today’s high-risk event over, it might
seem safer to float if lenders are pricing defensively by default.  And in fact, if you’re able to act quickly
and are somewhat flexible with respect to the risk of slightly higher closing
costs, that can be a valid strategy here, but floating is best reserved for the
longer term and most flexible scenarios here. 
While there is potential upside even for short term outlooks, it’s not
likely to ratchet the Best-Execution rate down another 1/8th of a
percent quickly enough to be worth the risk.

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
want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you
want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough
decisions?

—————————-

“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

Article source: http://www.mortgagenewsdaily.com/consumer_rates/216966.aspx

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